Every business passes through five distinct lifecycle stages and each is a factor in how buyers value your company.
Start-Up Stage: Because a start-up is difficult to value, buyers are rarely interested. It’s better to put off selling a start-up and take the time to grow sales.
Early Growth Stage: The business is operating at a break-even rate or slightly better. This stage can attract buyers who want access a new market and/or need to add products or services to their own.
Accelerated Development Stage: A rapidly growing company is prime for acquisition – you can justify higher profit projections and set a higher price. Buyers will look for one or more of the following:
- A dramatic increase in sales and/or high profit margins.
- Working capital and credit lines are about to be maxed out – an infusion of cash is needed to increase growth and market share.
- Accelerated growth is beyond the abilities of management – an experienced team is needed to take it to the next level.
Maturity Stage: Sales and profit margins have leveled off. Management complacency is setting in. If the business is established in its market and has a solid earnings record in previous years, it can attract buyers willing to provide the capital and management it needs.
Declining Stage: There’s a continuous loss of sales, market share and skilled personnel. A company in this stage may attract a very rare buyer known as a Turn-Around Specialist.
