Four Stages of a Business

All too often do I witness a perfectly healthy business, (one in which, perhaps a new owner has initially invested all his/her heart, soul, energy and a lot of money), slip away from the owner to become a seemly disappointing investment.

Yes…. I think we all know about the unexpected causes for a business failure. I call them the 4 D’s »Death »Divorce »Da Bank »DaConomy

Few business owners however, are aware of a much more sinister cause. Unfortunately, and only when it is too late, does the business owner go to the Internet to look for a broker to help “off-load” the business; as I said, unfortunately too late.

Like it or not, most small businesses go through a cycle of 4 Stages:-

The first stage and probably the most exciting, is when the business is called a:-

STAR – You have just bought a new business or built it from the ground up. You can’t wait to open the doors each morning. Your mind is over-flowing with ideas. You have abundant energy and enthusiasm; even your bank manager seems to be impressed. Customers are giving you positive feedback. You are wondering what it was that you were afraid of before you took the plunge, since everything is so much easier than you had originally anticipated.

Pretty soon the business becomes your friend and goes to its next stage:-

CASHCOW –Your business is beginning to make money; perhaps even exceeding your expectations. Your customers are regularly returning to you. You have a sense of satisfaction each and every day you carry your takings to the bank. You know in your body that your formula is working. The bank manager is acknowledging your daily visits, the bank staff are friendly and courteous and you are finally able to pamper your family and yourself to some of those things that were put off in the immediate past – perhaps a new car or clothes.

You settle back into the safety of your competence and accomplishment. I know you have felt that satisfaction. Yet here, that sinister seed begins to germinate….

PROBLEM CHILD - Usually the business owner will not recognize the beginnings of sleepless nights. Time and again you are going to the bank with fewer takings. You begin to have staff problems. Some of your favourite customers are not returning. You worry. You blame the government, the economy; seeking consolation from other operators when you learn they also are not doing well. You become less available to your family and friends. You begin to work longer hours, perhaps even letting one or two staff go to cut costs. You cut costs in other areas. You are stressed, and can’t think how to fix the problem. More and more frequently, you are receiving unfriendly reminders from your creditors.

Before you know it, your business has become a:-

DOG - You have already asked the bank to extend your overdraft; fiddled with your previously successful formula and realized, that you have only but confused your clients, since more and more are staying away. Sleepless nights become “night wanderings”. You have lost weight and now look stressed. You’re no longer as friendly to your clients, who also see your business is not as popular as it was and more continue to stay away. Your landlord won’t extend the lease for fear he will be stuck with you. You have lost enthusiasm and resent going to work each day. In fact you even resent the existence of your business. Finally you realize you have been too emotionally attached and for the first time you make a common sense “business decision” – you decide to sell.

Guess what…? It’s too late. And there is something else business owners admit to themselves – they should have sold sooner. They should have sold when the business is the most profitable and attractive to a prospective buyer, because that is the only time the owner will get the best price for it.

Peter Troy is a Business Broker at Excel Business Broking Services