Every business goes through five major stages and grows from the seed stage to maturity over its lifetime. However, not all businesses manage to go through all the stages.
Some die at the early stages due to lack of a viable business model or lack of a product or service that is solving a problem or filling a gap in the society. Other businesses die at the later stage of their life cycle due to poor resource management; key among them being poor financial management.
The Seed Stage
Financial management challenges increase as your business grows, expands its operations and widens its geographical reach. At the seed stage, you are focused more on developing your product and testing it to see whether it actually meets the standards you had in mind. At this level you are not yet receiving any cash inflows and so you have less financial management challenges. All you need is cash for research and development of the minimum viable product; which can easily be done at a minimum budget.
The Start-Up Stage
Next is the start-up stage where you are now shifting your focus to customer acquisition. Initially, you are more concerned about getting the first few customers to use your product and give you feedback on whether it meets their needs in a specific and most satisfying way. The increase in operations in your start-up also comes with increased budgets for pilot phase production as well as a minimum budget for marketing your products.
With the rising expenditure, you now start facing cash flow issues and cash flow management begins to crawl in as a very essential element of your business for it to succeed.
The Growth Stage
When your business gets to the growth stage, everything changes for the better except for cash flows management. Before you get into the growth phase which is characterised with rising numbers of customers and sales, you were testing your products or services with a small number of people. Now you have several orders from different clients and you need to meet them.
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This is coupled with an increase in publicity for your business as more customers get to know about your products and demand for them. The bottom line for your business grows very first and in this stage you reach your break-even point. All is good except that you are now handling too much money than you are used that; such that you might end up confused if you do not have strong internal control systems in your business.
With a lot of cash in your bank account during the growth stage of your business, you need to be financially prudent in order to avoid having idle money that is losing value as a result of inflation. At this point you will need to look for options where you can invest your money in the short-term in order to earn a return. Among the most preferred short-term investment avenues include treasury bills, fixed deposit accounts as well as online currency trading for the adventurous entrepreneurs.
The Expansion Stage
After the growth phase, your business gets into the expansion phase due to market saturation in your local market or due to competitors cropping up to eat into your growing market within your locality. At the expansion phase, you will find yourself focused on market research in order to understand your new markets as well as in development of new distribution channels into the new markets.
Expanding into new territories is a very complex and capital intensive affair and if you had not saved enough money during the growth stage, your expansion plans may be hindered. Strict financial management is required at this level of growth in order to ensure that all branches or your business affiliates in other geographical locations are running smoothly.
The Maturity Stage
Finally your business will get to a maturity level and again cash will start piling up in the bank account since you are having loyal customers and sales are more regular and predictable. At this stage, you are not so much worried about the day to day working capital requirements and your free cash-flow can be invested in mid-term investment vehicles.
Investing in commodities is a common alternative for the large corporates with large piles of money in the banks. Especially in times of political or economic uncertainty, you can invest your money in gold as a safe haven since the gold price moves in the opposite direction when markets are falling. Other options available include investing in government medium term bonds as well as in equities.