Every business is unique. But despite the differences in size, industry, and other factors, all businesses experience the same five growth stages. These business growth stages pose common challenges that need to be overcome. By understanding where you are now, you can plan to scale and avoid the pitfalls.
In this guide, we’ll reveal the five stages of business growth and the challenges they present. You’ll also learn how financing can help you through each stage.
The Five Stages of Business Growth
The Five Stages of Small Business Growth were first outlined by Neil Churchill and Virginia Lewis in the Harvard Business Review in 1983. While the model is almost 40 years old, it’s still the best way to define business growth stages.
From a local mechanic to an e-commerce startup, every business experiences the following five stages of business growth.
1. Existence
The first stage of business growth is determining whether the business is viable. In the existence stage, there are several challenges that the business owner needs to overcome.
You need to determine whether there is customer demand and establish that you can put the processes in place to deliver the product or service consistently at a high standard. Business processes will also need to be scalable so you can continue to meet demand as your customer base grows.
This initial aim is to put your business plan into action to attract customers.
Many businesses don’t make it beyond this stage. A lack of working capital can cause the company to fail in the first growth stage.
2. Survival
The next stage is about survival.
A business in this stage has already demonstrated demand for its offerings and can consistently deliver its products and services.
But it still needs to prove that it can generate enough revenue to cover expenses, reinvest in the business, and grow.
Many businesses do not make it past the survival stage. They generate enough revenue to cover expenses and keep the business operating, but they do not have sufficient capital to grow in size and move on to the next stage.
A business can take a long time to move beyond this stage if it relies solely on sales revenue to fund growth.
According to a study published in the International Journal of Economic Perspective, only 15.8% of businesses manage to move from the startup stage to the growth stage within a year.
3. Success
After navigating the survival stage, a business moves into the success stage.
In this stage, the business generates significant profits and has a substantial customer base.
The business owner’s main challenge is deciding what they want to do with their successful company.
You can choose to expand and reinvest in growth. This could involve opening new locations, entering new markets, or developing new products and services.
The alternative is to maintain the current business stage, invest when needed, and use the additional profits on new projects.
4. Take-Off
If your business continues to grow, the next stage is the take-off. This stage of business growth is characterised by increased revenue, a larger customer base, and bigger profits.
But the take-off also poses significant challenges.
As the business gets larger, so do the overheads and costs. The biggest challenge for business owners is to manage the increasing costs and ensure working capital keeps up with growth.
You must ensure your business can access the funds it needs to support expansion. If you grow too fast, you may find that access to working capital doesn’t keep up with your cash flow needs.
A cash flow forecast can be a valuable tool for every stage of business growth, but it’s essential for the take-off stage. It helps you predict cash flow so you can make decisions to protect working capital ahead of time.
Read our guide to learn how to create a cash flow forecast for your business, including a free downloadable template.
5. Resource Maturity
Businesses that reach the final stage of business growth face the challenge of continually improving to remain competitive. This typically involves the strategic management of staff, equipment, liabilities, and resources.
For example, you can look to reduce costs by negotiating better terms with suppliers through bulk buying or early payment discounts.
Many business owners focus on increasing efficiency while setting new goals. To avoid stagnation, it’s important to review processes, budgeting, and your overall business plan to ensure your business continues to thrive.
How To Identify Which Stage a Business Is In?
Not every business will make it through the five stages of business growth. Some fail at the first hurdle, while others remain stuck in the survival stage.
But most successful businesses will experience the above stages during their lifecycle. Understanding the five stages and where your business is can help you make informed decisions and plan for the future.
You need to honestly review your current circumstances and identify which stage best describes your situation. Then, you can start to address the challenges you face and plan for the next phase of business growth.
How Business Finance Can Help With Growth
Many business owners rely on bootstrapping in the early growth stages. With bootstrapping, business owners use personal savings and gifts and loans from friends and family to get their business off the ground.
But this can only take you so far.
To take your business to the next level, you need funding.
While reinvesting profits is integral to growth, reaching your goals can take a long time if it’s your only funding source.
That’s where business finance can help.
There are several types of business finance that can help you achieve sustainable growth, including:
Invoice Finance
Invoice Finance is one of the most well-suited types of financing for business growth. You can turn your outstanding sales invoice into an immediate cash advance.
Instead of waiting 30+ days for your customer to pay, you can submit the invoice for funding and receive a cash advance of up to 95% of the invoice value. Then, when your customer settles the invoice, you get the remaining balance, less fees.
Invoice Finance can help you overcome cash flow gaps and ensure that working capital keeps up with growth.
Asset Finance
Asset Finance is a type of funding that can help your business grow by allowing you to purchase the equipment and machinery you need to grow without having to cover the high upfront cost.
You can get the equipment your business needs to grow without stretching working capital. Instead, you’ll be able to spread the cost over a more extended period with affordable regular repayments.
More established businesses can also use Asset Finance to release the capital tied up in the assets they already own.
Trade Finance
Trade Finance can help your business to grow by providing the funding you need to cover the cash flow gap between paying for inventory and converting it into sales revenue.
It’s a good option for businesses that need to capitalise on seasonal sales and those looking to grow by securing larger contracts with bigger clients.
You can also use Trade Finance to secure bulk buying and early payment discounts with suppliers.
Learn more about this type of funding in our blog post How Trade Finance Works.
Business Loans
A Business Loan can be a useful financial solution at every stage of business growth. For example, you can get the funding you need to launch your business and navigate the existence and survival phases or fund expansion later in the business lifecycle.
Most business loans are secured by residential property. You can typically access up to 80% of the value of the equity you own in the property.
However, not all business loans are the same. For example, banks tend to have stricter lending criteria and time-consuming processes compared to lenders like ScotPac.
You can learn more about ways to fund growth in our guide, Growth Finance: What Are Your Options?.
Fuel Growth With ScotPac Business Financing
It’s easy to lose sight of the big picture when you’re dealing with the day-to-day running of your business. But it’s important to take a step back and get some perspective.
When you know your current growth stage, you can address the challenges holding you back and take the next step.
At ScotPac, we provide award-winning business finance solutions that help our clients grow 3x faster than the average Australian business. If you need financing to help you reach your goals, we can help.
Use our online enquiry form or give us a call. You’ll be connected with one of our business finance advisors, so we can learn more about your needs and recommend the right solution for you.