As in life, all businesses go through different phases of development. With each phase of development, there are different needs that are more acute or important.
“Researching and analyzing our privately held family businesses over the years, we have concluded there are four phases of an entrepreneur’s business life cycle: startup, growth, maturity and succession,” says Jeffrey Neuman, president of Barnes Wendling CPAs.
Smart Business spoke with Neuman about the phase of a business’s life cycle and the key needs companies have at each stage.
What characterizes the startup phase?
The startup phase is an exciting time for a business and represents its first five years. It is the stage at which the emergence of ‘the idea’ comes into play. Companies in this phase typically:
■ Implement the business plan.
■ Establish an organizational structure.
■ Determine their choice of entity.
■ Establish working capital needs.
■ Implement simple, yet effective financial and management reporting systems.
■ Acquire a proper location and facilities.
■ Anticipate personnel requirements.
■ Determine the costs of products or services to be rendered.
■ Select a payroll service provider.
■ Allocate time to analyze and brainstorm ‘the vision.’ Consider the utilization of an outside advisory board.
What stands out at the growth phase?
In the growth phase, the hard work of the prior phase is paying off and the business is heading for success. This phase usually begins around the fifth year, lasts until around year 15 and should include:
■ Definition of goals and strategies to manage growth and remain focused.
■ Focus on working capital needs to accommodate and sustain growth.
■ Anticipate and develop personnel and establish an organizational structure to facilitate growth.
■ Refine and redesign the financial and management reporting systems to measure performance and have accountability.
■ Implement employee retention programs and employee benefit plans. Formalize the business’s marketing strategy.
■ The entrepreneur moves into a focused leadership role, becoming more of an administrator and delegator.
■ Enhance communication systems to foster continuous improvement and a total teamwork attitude. Move from a reactive to a proactive culture.
What is the focus at maturity?
The maturity phase starts at the 15th year and lasts until around the 25th year. Here:
■ Profitability is usually stable and planning is more consistent.
■ Divergent thinking is embraced to continue to expand the business in a more controlled manner.
■ Asset management becomes an important priority. Development of compensation and incentive plans for non-owners are evaluated and instituted to bolster a high level of entrepreneurial spirit.
■ Executive leadership should be highly focused on working as a team.
■ Re-evaluation of the essential costs of providing products or services is crucial to maintain market share.
■ Personnel development and continuous education allows for fresh ideas and improvements to business operations.
■ Decentralization allows for employee development and future leaders to evolve.
What are some strategies for succession?
The entrepreneur’s life’s work culminates in the succession phase. Anywhere from the business’s 25th to 35th years, the entrepreneur succeeds the business in a manner aligned with his or her personal goals. Depending on the goals of the entrepreneur, he or she could execute an external or internal sale, or succeed it to the next generation.
External sales options include an initial public offering, sale to strategic buyer, sale to private equity firm or sale to an investor. Internal sale options include selling to the management team or selling to employees through an Employee Stock Ownership Plan.
Regardless of the option selected, the easiest way to succeed a business is to build a great business. ●
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