Every business goes through different stages – from inception to its demise. Every stage of a company is unique and it has different funding needs at each stage. Based on the which stage your company is in, you need to create appropriate funding strategies for the company to grow.
In this article, we will learn about 4 stages of a company and how the funding needs change at each stage. Common funding options include bootstrapping, taking a personal loan, approaching VCs, etc.
4 Stages of a Company
1. Startup Stage
At this stage, most entrepreneurs bootstrap their startup. They either use their savings, take a personal loan for business, or use their credit cards to fund the business.
If you still fall short of cash, you can turn to family or friends for a loan. One option rising in popularity is crowdsourcing. You can use any of the crowdsourcing platforms to raise money. You just need to pitch your business idea, mention how much money you need to raise and how you will use the money.
2. Growth Stage
Some startups have the good fortune of a large profit margin. This allows them to grow organically without relying on outside capital. A net margin of 30% can sustain a great growth rate.
However, if a startup has a profit margin of 5% and is growing fast, it may run out of business soon. This would be because there wouldn’t be enough cash to support the growth. Since low margin and high growth will drain the cash flow, you need more funding options.
You can bring in equity partners or take on debt to cover operating expenses or expand inventory. A newer funding option for B2B companies funds the invoices upfront. This facilitates the company to grow with its own money.
3. Maturity or Stable Stage
This is the stage where the growth of the company starts slowing down. The competitors gain market share and the demands of the customers evolve. The maturity stage is the time when the business owners need to make some tough decisions.
Some questions they might need to ask themselves are:
– Should they bring in more investment despite the decline?
– Should they invest in other ventures to diversify their risk?
– Should they consider an exit strategy or liquidate?
At this stage, business owners need to track the potential future trajectory of the company and reach a decision accordingly.
4. Decline Stage
This is when the company’s funding options begin to dry up.
The investors take their money elsewhere, the credit lines start shrinking and the employees may leave for better opportunities. This is the time when the owners have to take the decision of either shutting shop or selling the business. Trying to run a company at this stage would mean running into great debts.
It isn’t easy to let go of the company you built from scratch but you must try to cut the cord if the business is dying. However, proper funding strategies at each stage can improve the financial health of the company. This could further extend the company’s life.
About the Author: Shiv Nanda
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at shiv@moneytap.com.