Common Mistakes of the 4 Stages of Business

A successful business goes through many stages, each requiring a particular focus with important decisions that lay the foundation for the future.  Are you sure that you are making the best business and financial decisions today?  Do you know what you should be worrying about now and what can wait until later?

 

The trouble is there are so many things you can be worried about and so many people telling what they think you should be looking at. I created this list to give you an idea of what things you should really be looking at, at any given stage of your business. I have included some metrics about years in business and employee count but these should be used as a guideline only. It is entirely possible to be in a growth stage year one or have 30 employees when you start up.

 

“The Start-Up Stage” (1 to 5 Employees, 0 to 3 years in business)

The start-up stage is the first stage of any new business.  Most likely, you are struggling with the day-to-day responsibilities of the business, the things you did not have to worry about when you were working for someone else.  You are overwhelmed with the complexity of running your own business.  At this stage, you need to focus on business basics such as:

  • Developing business plans
  • Required financing
  • Basic business concepts
  • Accounting and management systems

Small business owners, especially at this stage, are inundated with ideas, options, choices, and plans.  It is important to stay focused on implementing the basic principles of a successful business.  This foundation will provide a solid platform for you to grow your business on later.

 

“The Growth Stage” (5 to 15 Employees, 1 to 6 years in business)

In the growth stage, you face other, distinctly different, problems.  You have proven your business concept and are likely making some money.  You know how to run the day-to-day operations of your business.  But, you are struggling to grow the business by adding more employees and services.  During this stage, your focus needs to shift to things like:

  • Business entities
  • Profitability
  • Hiring and training
  • Tax advantages

Growth Stage businesses are where most small business stop growing.  Their owners do not have the ability to create a strategic plan to help them grow beyond themselves.  The focus needs to be on long-term planning and preparing for the inevitable bumps in the road.

 

“The Mature Stage” (12 to 25 Employees, 5 to 15 years in business)

Mature businesses face problems and issues that are even more complex.  You have created a successful business, you have great staff, you have good profitability, and great customers.  But how do you keep this complex operation running, without you needing to be involved every second of every day? At this point, you need to transition away from the small business mentality and start thinking like a business professional. You need to focus on:

  • Goal setting
  • Retirement plans
  • Cash flow management
  • Organizational structure

Mature businesses have a unique challenge.  How to grow is no longer your primary issue.  You are grappling with the issues that are created by a growing company.  How do you manage the growth?  How do you keep it sustainable?  How much growth is enough? These are the tough questions that are best answered with professional guidance as a sounding board.

 

“The Exit Stage” (Any Number of Employees, 10 to 30 years in business)

A business in its Exit Stage is the climax of every business owner’s life.  You built this business; you achieved your dream.  But how do you take that business and turn it into the retirement that you have worked so hard for?  You need to focus on the big ideas like:

  • Succession planning
  • Retirement income
  • Exit strategies
  • Estate and income tax issues

Making decisions at the Exit Stage have lifelong consequences.  By now, you know the impact that one bad decision can have on the business.  You understand your needs for retirement, and know that you will probably never grow a business to this stage again in your lifetime.  Most business owners procrastinate their planning due to “paralysis by analysis”.  They are emotionally attached to their business; they are unable to face the tough choices involved in exiting.  Getting professional help to give you an objective view is critical at this stage.

 

Owning a business is the single greatest way to accumulate personal wealth.  The trouble is, most people enter the business arena because they want to do something they love – not because they are great at running a business.  That’s what we’re for.  At NCH Wealth Advisors, we have the experience to guide you and your business, no matter what stage it is in.  Give us a call so we can lay out a roadmap to success for you!

Is Your Business a Good Investment?

Your business is a combination of capital and labor. You need to constantly evaluate how effectively you are using those inputs to determine if your business is still the best choice for your time and money.

Don’t get caught in the trap of solely using profit as a gauge of your company’s health. The capital used in your business might earn more profit somewhere else. You might make for your time working somewhere else as well. Always remember that there are lots of ways to make money. Make sure you are making money the most efficient way for you.

 

What IS Unique About Your Business

Every business owner believes that their business is unique. And truly, there are several things that are distinct to you and your business. You determine your own required rate of return. How much do you need or want to make? How much do you want to work? How much do you want to net from your exit strategy? How much do you need to retire? These are all personal questions only you can answer.

 

Small business owners have unique capital sources. You don’t get to issue bonds or sell stock. You have to spend your own savings or borrow. You face unique borrowing concerns, stiff requirements from banks and credit unions leave you with credit cards and family members as your most likely options. Whatever method you use though, make sure you know how much your required rate of return changes when you put that capital into play. Borrowing money always increases your risk and therefore increases how much you need to make.

 

Your business model is also uniquely yours. Many large businesses often have similar business models, but small businesses have MUCH greater flexibility. They don’t need to fill an international need or even a national one. Maybe you have identified a need that exists just in your local community. As a small business owner, you have the flexibility to address that need.

 

What is NOT Unique About Your Business

There are some fundamental laws of business that apply to all business, no matter how large or small. For example, you can use a profitability measure to gauge your effectiveness. Your business is a combination of capital and labor. The capital in your business could potentially be invested elsewhere, if the return in your business falls below your minimum required level. The most common reason that small businesses fail is they become emotionally attached to the business and forget these fundamental rules of business.