We understand how a business is like a living organism and why "feed" your own business with investments, even if it has already grown.
Any company goes through certain stages of business development during its existence. Both in a family cafe, in an online clothing store, and at a steel pipe factory, there are similar processes and problems that economists compare to the existence of a living organism. These stages make up the full life cycle of the business.
Such a comparison is also possible because at each stage a business, like a living organism, needs to be "fed" with investments so that it lives and develops.
The main thing is how a business differs from a living being: death in his scenario is not necessary at all. And it is important for an entrepreneur to understand at what stage of development his company is in order to know how to grow it further.
1. The foundation stage
You are starting a business. This means that you have already assessed the viability of the idea, taken into account all the risks, calculated what expenses are waiting for you at the start, and wrote a financial plan.
At the foundation stage, you register an individual entrepreneur or LLC, recruit a team, and look for the first customers. At this point, the project needs funding. You can find its sources in different ways — everything will depend on the type of business and your idea of how the business should develop.
How to attract money?
You will need to collect at least part of the start-up capital yourself: save money or, for example, sell real estate. If there are not enough personal savings to start, you can find financing in the following ways:
1. Apply for government support
If you have a business that is significant for the region, then you can ask for financial (and not only) assistance from the state for special business support programs.
2. To raise the necessary amount with the help of crowdfunding "Collective Financing" at the very beginning of the project can work if you have a creative project or an unusual product — you produce something that you want to order immediately.
3. Find a venture investor
A venture investor can be attracted to a technology-related startup at the foundation stage. Usually this is a technology specialist who invests his resources in fast-growing startups, hoping for a big profit. Resources are not only money, but also knowledge. An investor can propose a development strategy, search for and train specialists, find the right contacts — in order to achieve results faster and recoup their financial investments.
When starting a business with a venture investor, it is worth investing at least 50% yourself, otherwise it is likely that your partner will influence the processes too much, hoping to get more profit.
4. To lease equipment or property
If a business needs a car, large equipment or premises, then you can lease it: you rent the property, but with the possibility to buy it out completely. The leasing fee will not hit the budget much, and at the same time you will have equipment that will most likely pay off the fees for it. For a while you pay for the property in leasing, but it works for you and constantly makes a profit.
2. The stage of going to zero
At this stage, you can return the money you spent on opening the case. The business has a minimal profit, and with its help it is possible to maintain turnover: there is enough money from the sale of goods to buy new batches. But there may not be enough funds for improvements that will allow you to make more profit: you cannot hire new employees or purchase more goods. So the business still needs financing.
How to attract money?
1. Take a microloan to the MFO
The terms of microloans for business are very different from those for consumer loans — the annual rate on them is much lower (from 20%). In addition, in each region there are MFOs of entrepreneurial financing that issue loans to businessmen at a reduced rate — from 8-9% per annum. How to get a micro loan for the development of your business, read our article.
2. Organize fundraising with the help of crowdfunding
At this stage, you can also apply for "collective financing", especially if you produce goods — a crowdfunding platform can become an additional sales market.
3. Growth stage
The business increases profits and the number of customers: you can distribute debts, if there are any, hire new employees, increase production volumes. Additional investments should be spent on improving the service and solving problems that hinder development. Let's say your courier service needs not two cars, but five. Or the website of an online store should be seriously redesigned.
Also at this stage, there is a high probability of encountering cash gaps: when you have already earned money, but you don't have it on hand yet and you can't put it into circulation or spend it.
How to attract money?
1. Connect the factor to the payment scheme
If you are engaged in trading, right now you are getting more customers, which means you need to buy and sell more. Many companies sell goods and services with deferred payment: they received or sold the goods today, and the money for it will be transferred only in a month or two. In order to avoid a cash gap, you can connect factors into the relationship between the buyer and seller. A special company or bank pays the seller for the goods at the time of delivery, and the buyer has a delay: he pays for the goods later and already to the factor.
2. To lease equipment or property
And at this stage, it is not necessary to buy additional equipment, transport or real estate — you can lease the necessary and buy it later, when the equipment will allow you to earn more.
3. Take a loan
For a growing business that has been in existence for a couple of years, a loan or loan is more likely to be approved. You can get preferential conditions or enlist guarantee support for a loan from banks and MFOs that work under state support programs.
4. Sell a share of the business
This way you will receive not only money for further development, but also a business partner. To avoid possible conflicts and not to become a victim of an unscrupulous colleague, carefully approach the choice: be sure to legally fix the sale of the business, draw up a contract that clearly states what rights the partners have and what their role in the project is.
5. Attract co-investors
Your business is already successful, which means there are more chances that investors will be interested in it. You can search for them among colleagues and acquaintances, on crowdfunding platforms and industry forums.
4. Maturity stage
At this stage, the business ceases to grow intensively and becomes resistant to external circumstances. Problems in the economy (for example, rising prices for raw materials) or force majeure should not be a death sentence for the company - in this case there should be a financial safety cushion that will allow you to survive the crisis and find a way out of the situation.
Although there are fewer risks, it's not worth letting everything take its course. If you keep the situation under control, you can stay at this stage for a long time. But it is possible to develop the business further and scale it. For example, expand the geography and sales volume or increase the number of outlets in your region. This will require not only efforts, but also finances.
How to attract money?
To scale a business, profit alone may not be enough. You can attract additional money using methods that are already familiar to you. They should be chosen based on the specifics of the business. If you have a transport company or taxi company and you need more cars, leasing is suitable. If you have a beauty salon and you want to launch an advertising campaign to attract new customers, you can take a microloan to the MFO. Need a new point — think, maybe a loan will suit you.
1. Take out a loan using crowdinvesting
Crowdinvesting is a way to get loans on special Internet sites. At this stage of the business, the company's financial statements will most likely not cause doubts among potential investors, and it will be possible to take out a loan fairly quickly.
2. Take out a loan
For a mature enterprise, a loan is a completely safe way to attract money, if, of course, you perfectly understand what they will go for. At the same time, the maturity of the company does not deprive you of the opportunity to receive benefits at all.
3. Issue securities
Legal entities at the maturity stage can issue shares and bonds to attract additional money.
The promotion is a kind of "sale" of the company's micro-shares: the shareholder gives you money, and in return receives a percentage of the possible profit. In addition, the votes of shareholders will need to be taken into account when making decisions on the development of the company.
A bond is a debt obligation under which you, figuratively speaking, borrow money from the buyer and undertake to return more after a while.
5. The stage of decline
Profits are declining, costs are rising, customers are being lost — these are signs of a stage of decline. It is possible that even if you have new customers, the net profit still does not increase: the money will go to pay off costs.
But the stage of decline does not necessarily portend the closure of the business. At this stage, the company can still be saved.
How to attract money?
At this stage, do not rush to close the problem by simply pouring money into the existing structure. First, identify the problems: perhaps you are currently spending money inefficiently and your budgets simply need to be redistributed.
Set up internal processes, try to bring something new to the business. These can be managerial decisions — for example, introduce a new employee motivation system or implement a program that will optimize their work. You can also try strategic innovations: start selling a product that competitors do not have, or develop a convenient mobile application with which you can reach new customers. To do this, you can attract money in ways that are already known to you — for example, take a loan or a loan, find co-investors.
Five stages is not a mandatory scenario
Any company goes through certain stages of business development during its existence. Both in a family cafe, in an online clothing store, and at a steel pipe factory, there are similar processes and problems that economists compare to the existence of a living organism. These stages make up the full life cycle of the business.
Such a comparison is also possible because at each stage a business, like a living organism, needs to be "fed" with investments so that it lives and develops.
The main thing is how a business differs from a living being: death in his scenario is not necessary at all. And it is important for an entrepreneur to understand at what stage of development his company is in order to know how to grow it further.
You are starting a business. This means that you have already assessed the viability of the idea, taken into account all the risks, calculated what expenses are waiting for you at the start, and wrote a financial plan.
At the foundation stage, you register an individual entrepreneur or LLC, recruit a team, and look for the first customers. At this point, the project needs funding. You can find its sources in different ways — everything will depend on the type of business and your idea of how the business should develop.
How to attract money?
You will need to collect at least part of the start-up capital yourself: save money or, for example, sell real estate. If there are not enough personal savings to start, you can find financing in the following ways:
1. Apply for government support
If you have a business that is significant for the region, then you can ask for financial (and not only) assistance from the state for special business support programs.
2. To raise the necessary amount with the help of crowdfunding "Collective Financing" at the very beginning of the project can work if you have a creative project or an unusual product — you produce something that you want to order immediately.
3. Find a venture investor
A venture investor can be attracted to a technology-related startup at the foundation stage. Usually this is a technology specialist who invests his resources in fast-growing startups, hoping for a big profit. Resources are not only money, but also knowledge. An investor can propose a development strategy, search for and train specialists, find the right contacts — in order to achieve results faster and recoup their financial investments.
When starting a business with a venture investor, it is worth investing at least 50% yourself, otherwise it is likely that your partner will influence the processes too much, hoping to get more profit.
4. To lease equipment or property
If a business needs a car, large equipment or premises, then you can lease it: you rent the property, but with the possibility to buy it out completely. The leasing fee will not hit the budget much, and at the same time you will have equipment that will most likely pay off the fees for it. For a while you pay for the property in leasing, but it works for you and constantly makes a profit.
2. The stage of going to zero
At this stage, you can return the money you spent on opening the case. The business has a minimal profit, and with its help it is possible to maintain turnover: there is enough money from the sale of goods to buy new batches. But there may not be enough funds for improvements that will allow you to make more profit: you cannot hire new employees or purchase more goods. So the business still needs financing.
How to attract money?
1. Take a microloan to the MFO
The terms of microloans for business are very different from those for consumer loans — the annual rate on them is much lower (from 20%). In addition, in each region there are MFOs of entrepreneurial financing that issue loans to businessmen at a reduced rate — from 8-9% per annum. How to get a micro loan for the development of your business, read our article.
2. Organize fundraising with the help of crowdfunding
At this stage, you can also apply for "collective financing", especially if you produce goods — a crowdfunding platform can become an additional sales market.
3. Growth stage
The business increases profits and the number of customers: you can distribute debts, if there are any, hire new employees, increase production volumes. Additional investments should be spent on improving the service and solving problems that hinder development. Let's say your courier service needs not two cars, but five. Or the website of an online store should be seriously redesigned.
Also at this stage, there is a high probability of encountering cash gaps: when you have already earned money, but you don't have it on hand yet and you can't put it into circulation or spend it.
How to attract money?
1. Connect the factor to the payment scheme
If you are engaged in trading, right now you are getting more customers, which means you need to buy and sell more. Many companies sell goods and services with deferred payment: they received or sold the goods today, and the money for it will be transferred only in a month or two. In order to avoid a cash gap, you can connect factors into the relationship between the buyer and seller. A special company or bank pays the seller for the goods at the time of delivery, and the buyer has a delay: he pays for the goods later and already to the factor.
2. To lease equipment or property
And at this stage, it is not necessary to buy additional equipment, transport or real estate — you can lease the necessary and buy it later, when the equipment will allow you to earn more.
3. Take a loan
For a growing business that has been in existence for a couple of years, a loan or loan is more likely to be approved. You can get preferential conditions or enlist guarantee support for a loan from banks and MFOs that work under state support programs.
4. Sell a share of the business
This way you will receive not only money for further development, but also a business partner. To avoid possible conflicts and not to become a victim of an unscrupulous colleague, carefully approach the choice: be sure to legally fix the sale of the business, draw up a contract that clearly states what rights the partners have and what their role in the project is.
5. Attract co-investors
Your business is already successful, which means there are more chances that investors will be interested in it. You can search for them among colleagues and acquaintances, on crowdfunding platforms and industry forums.
4. Maturity stage
At this stage, the business ceases to grow intensively and becomes resistant to external circumstances. Problems in the economy (for example, rising prices for raw materials) or force majeure should not be a death sentence for the company - in this case there should be a financial safety cushion that will allow you to survive the crisis and find a way out of the situation.
Although there are fewer risks, it's not worth letting everything take its course. If you keep the situation under control, you can stay at this stage for a long time. But it is possible to develop the business further and scale it. For example, expand the geography and sales volume or increase the number of outlets in your region. This will require not only efforts, but also finances.
How to attract money?
To scale a business, profit alone may not be enough. You can attract additional money using methods that are already familiar to you. They should be chosen based on the specifics of the business. If you have a transport company or taxi company and you need more cars, leasing is suitable. If you have a beauty salon and you want to launch an advertising campaign to attract new customers, you can take a microloan to the MFO. Need a new point — think, maybe a loan will suit you.
1. Take out a loan using crowdinvesting
Crowdinvesting is a way to get loans on special Internet sites. At this stage of the business, the company's financial statements will most likely not cause doubts among potential investors, and it will be possible to take out a loan fairly quickly.
2. Take out a loan
For a mature enterprise, a loan is a completely safe way to attract money, if, of course, you perfectly understand what they will go for. At the same time, the maturity of the company does not deprive you of the opportunity to receive benefits at all.
3. Issue securities
Legal entities at the maturity stage can issue shares and bonds to attract additional money.
The promotion is a kind of "sale" of the company's micro-shares: the shareholder gives you money, and in return receives a percentage of the possible profit. In addition, the votes of shareholders will need to be taken into account when making decisions on the development of the company.
A bond is a debt obligation under which you, figuratively speaking, borrow money from the buyer and undertake to return more after a while.
5. The stage of decline
Profits are declining, costs are rising, customers are being lost — these are signs of a stage of decline. It is possible that even if you have new customers, the net profit still does not increase: the money will go to pay off costs.
But the stage of decline does not necessarily portend the closure of the business. At this stage, the company can still be saved.
How to attract money?
At this stage, do not rush to close the problem by simply pouring money into the existing structure. First, identify the problems: perhaps you are currently spending money inefficiently and your budgets simply need to be redistributed.
Set up internal processes, try to bring something new to the business. These can be managerial decisions — for example, introduce a new employee motivation system or implement a program that will optimize their work. You can also try strategic innovations: start selling a product that competitors do not have, or develop a convenient mobile application with which you can reach new customers. To do this, you can attract money in ways that are already known to you — for example, take a loan or a loan, find co-investors.
Five stages is not a mandatory scenario
It is not necessary that your business will go through all these five stages and that the stages will follow each other strictly in the order described. Some companies enter the decline stage immediately after opening, others work for years, moving from the stage of maturity to the stage of expansion - everything is individual and depends on the decisions you make.