Financing business growth
Dr Ichak Adizes, he of the “Adizes Corporate Life Cycle”, has in his various lectures and books talked of the growth of business associations. He says that every organization grows and develops according to a natural lifecycle, facing predictable problems at each stage along the way.
Only business owners who are equipped to handle smooth transitions will see a well started business financed to stability. It is the intention of this discussion to analyze the different modes of financing a business during its growth, that is, from inception to maturity.
The Infancy stage
This is the stage where business owners roll up their sleeves and put structures in place to commence a business. Adizes says that like a true baby, nascent businesses need two things to survive, operational capital and proper management. At this stage, therefore, businesses may need a lot more money to survive as there will be unexpected trouble. Personal savings of an individual may not be enough to skip the many hurdles that will be faced and so angel financing, venture capital, corporate venture capital and loans may be of great significance.
The main reason for a steady supply of cash is that many beginning businesses will need a lot of money to be maintained. Advice to such businesses is to seek consistent business financing and good talent for growth.
Business flow stage
At this stage the business has or is now picking up and cash inflow is relatively predictable. The business owners will start to get comfortable and there will be a lesser need for business financing. However, much as this is the case, a business owner might want to know that a large proportion of the money received at this stage should be re-injected back to the business in terms of asset acquisition, talent recruitment, advertising and commission of some funds to the capital reserve of the business.
The puberty/adolescent stage
The growth of a business at this stage is usually erratic and confusing. The intensity of growth can be maintained but may not be for so long. The business organization will usually have enough money to finance itself, thanks to the savings made and the robust business from its reputation in the industry.
Any deficit experienced at this time may be easily financed trough quick credit from venture capital both institutional and corporate or the founders’ personal savings. However, it should be noted that as the business implements its structures, it should start to lean more on built-in entrepreneurial activities and not endless financing.
Optimal or prime stage
At this stage, the business has achieved what it needs to achieve in the market. Most of the energy is now concentrated on maintaining a steady growth as its goals are clear, priorities are set, entrepreneurial skills have been solidified, decision making is quick and financial structures have been programmed to achieve both the short term and long-term goals.
Although the management of a business will be comfortable, it is advisable that they try to diversify into new areas or sell a piece of the business through Initial Public Offering (IPO) or private placement. Finance for business growth at this stage is easy to come by as more and more financiers are willing to be associated with the business.
It is critical to be aware of the position of your organization on the business life cycle in order to gauge its success, failure and most importantly to accelerate growth or launch a fight back through the various forms of business financing (Ian Williamson).
References
- http://www.adizes.com/
- http://books.google.co.ke/
- http://www.score.org/fc_4.html
- http://www.emda.org.uk
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