The 5 stages of the business funding lifecycle

The 5 stages of the business funding lifecycle

Wednesday 5th August, 2020

There are typically five stages a business will go through during its lifecycle which are all linked to the natural progression of a business over time. Each phase is unique and with each phase comes varying requirements. Business finance is one of those requirements that adapt over time depending on which phase in the lifecycle the business is in.

Launch Phase

This is the startup phase. Sales are generally slow. The profit cycle lags behind the sales cycle and losses are expected. At this phase, it’s impossible for a business to finance debt as its ability to repay that debt is still uncertain.

Business owners in the launch phase can look to bootstrapping their finances by using their own financial resources either through savings or a personal credit card. Friends and family can also be approached, these loans are usually an investment in the business owner themselves and not the actual business. It’s more of a personal investment from someone close to the business owner but shouldn’t be discredited. Crowdfunding is also a powerful option at this stage. A wider pool of potential investors with fewer restrictions becomes available. This is a good option for when a business wouldn’t yet qualify for a bank loan. 

Michael Dell, founder of Dell computers, used upfront payment for his made-to-order PCs work for him by giving him funds to buy necessary parts and hire the right people to put his computers together. Getting upfront payment from customers is a good way to start your sales cycle and ensure there is at least some form of cash flow in the business.

Growth Phase

By now, there is rapid sales growth and the business is starting to see profits as it reaches the break-even point. This is the perfect phase for betterbanc’s fast and affordable growth capital to help any business purchase more inventory or up their advertising and marketing spend. 

Angel Investors can also play a key role at this phase by providing capital in exchange for convertible debt or ownership equity. The Growth Phase can also benefit from the use of crowdfunding as discussed above, but with a different strategy. Unlike in the Launch Phase where a crowdfunding mission would be selling a ‘dream’, a Growth Phase strategy already has a Proof of Concept to back its request for additional funding.

Shake-Out Phase

Once businesses reach this phase, sales continue to increase but at a lower rate than before. Businesses in the Shake-Out phase are looking for operating capital for long term growth. This is the perfect time to apply for a bank loan. You would already have a financial track record and if you have a merchant account with the bank, they will know all about your business and its finances. Getting a loan from a bank can sometimes feel cumbersome and time consuming, if you need access to fast capital,Betterbanc’s flexible and scalable financing solution of up to ZAR500 000 could add immense value to any business in the Shake-Out Phase.

Businesses who are experiencing rapid growth often need financing of tens of millions in order to enter new markets, expand their sales, or add new products. A Venture Capitalist would be the right fit here.

Maturity Phase

A mature business has, by this point, eliminated most of its business risk and the most stable of these have the easiest access to debt capital. This phase also brings with it the potential decrease in sales and the requirement for many businesses to reinvent themselves or invest in new technologies or emerging markets. Their current market could have become stagnant or saturated and a bank loan should give them the capital needed to action this reinvention.

Decline Phase

This is the final stage of the business lifecycle where sales, profit, and cash flow all decline. If a business has not adapted to the changing environment during the Maturity Phase, more often than not, they will fail and exit the market. Those who have, however, should continue to adapt to changes. One example of this would be to access funds in order to go from a bricks & mortar store to a fully online ecommerce store.

Understanding the business lifecycle is critical for business owners to also understand what types of funding are available to them and which avenues to pursue successfully. There are clear funding options at every stage and each of them unique to that particular stage’s financial requirements.

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