The four major phases of any business’s life cycle are launch, growth, maturity and decline/renewal. Usually, most companies are unable to identify which stage their business is in which leads them to miss a lot of opportunities for effective management. For example, the gradual sales in a business are not an indication of your business growth. Having a proper understanding of each phase of your business life cycle is important to be prepared to tackle any/all challenges that come your way.
Note that the characteristics of every phase vary according to the business type. However, the one critical and common characteristic that affects all the stages of your business is cash flow.
In this piece of article, you will find out how cash flow affects every stage of your business.
Different business life cycle phases
Phase 1 – Launch
Phase 2 – Growth
Phase 3 – Maturity
Phase 4 – Decline or Renewal
How to manage cash flow at different phases of the business life cycle?
When your business is in the launch phase, your major requirements at this moment for a business are time and money since it is on the verge of establishment in the market. This is the stage where there is a possibility that you might end up spending more for establishment while your sales are low which leads to sluggish cash flow. Budgeting and forecasting at this stage are crucial for every business. Ensure that you establish strict payment terms to manage receivables. By doing so, you can efficiently build a cash reserve for rainy days.
Another very critical parameter to understand at this stage is to understand your business’s break-even point.
Note – The break-even point is defined as a point below which your business will need to source additional finances or even liquidate the assets to meet any fixed expenses.
If you know your business break-even point, it will help you estimate how much you can spend to reach your goal.
We understand that it might be hard to hire a professional accountant to help you manage and sustain a steady cash flow. The good news, however, is that there are many financial management tools available to help with this like Paci Finance. So, even at the launch phase of your business, you can easily track the cash flow status of your business and take the necessary steps.
Right after you have managed to steadily cross the launch stage comes the time to grow your business. Acquiring new customers is one of the most effective ways of getting consistent revenue and increased profit. This extra amount of cash inflow is called positive cash flow. Positive cash flow will help move your business forward.
This is the phase where the suppliers will still hesitate to grant your business credit. This is where you will feel the need to hire more people to work on your business which will increase the expenditure, leading to a time lag in receiving the payments.
There are many other factors that impact cash flow at this stage like – working capital, cash cycle, and debt. So, if you wish to keep your business cash flow healthy, your cash must be planned, monitored, and measured, & eventually put to the right use. Always forecast your business goals & plan the cash required to meet those growth objectives. Ensure that even after all this if you are not getting your payments on time, your business must not come to standstill. This is where you can start exploring different financing options like revolving credit lines etc.
The next phase of every business is the maturity phase. This is where you will see no drastic cash flow changes. Your business, as you can say will be considered mature to have stable sales. At this stage, if you wish to find new ways to power new ideas, you can do it at this stage by analyzing the cash flow and reducing the cost wherever possible.
Note: Keep an eye open for any competition circling around. This is the stage where the pricing of the products must be cut down a bit considering the competition in the space.
If your business is in the decline stage, it will see a fall in the market share, a drop in sales, and even reduced profits – leading to cash flow problems. This is where you need to analyze your cash flow and find out the places for cost-cutting. There are many ways in which you can renew the declining business like acquiring similar new businesses in the domain. In case you find out that the business cannot be renewed, there is going to be a need for ethical closure.
In the end, we would like to point out that at any and every stage of your business, it is critical to keep an eye up for the cash flow. Your business’s cash flow statement would help you determine the next course of action at every stage and even predict at which stage your business is. Luckily, we have many reputed financial management software to manage the cash flow for your business. Paci Finance is one of the best finance management software that is designed for cash flow management among other things.