Business Cycles

There are two business cycles that are discussed, one which relies on the age of the business and the people running it and the other relies on external factors which tend to be influenced by the economy. These cycles can also be influenced by the attitude of those controlling the business.

The maturity business cycle

Kicking off a business is usually prompted by seeing an opportunity that is not being addressed effectively or they desire to be one’s own boss. The kick off phase is exciting, dangerous, stressful, (can be the best game in town) usually with low sales and a huge learning curve. The next phase is the growth phase where you continue to make mistakes, learn, increase sales and look to expand the opportunities that the business has. This phase may include hiring employees and expanding product range requiring greater resources, equipment, finance and time. The next phase is the cruise, that phase where the systems are working the sales are stabilised customer base is established and the pressure has eased. The phase is when the business has matured and the person running is no longer driven, customers either age or withdrawal and the product may no longer be the best for the market.

The cyclic business cycle

This is more dependent on the economy and the market that business operates on. The cycle begins with an expansion phase where the business is driven, defining new opportunities and the offering is received well by the market. The business will continue to expand until it reaches the peak which is either dictated by limitation of business resource, energy, time or limitation of the market available for their business. Gravity eventually kicks in and the business goes through a reduction phase where sales drop off profits get squeezed and expenses grow or are difficult to manage. The cycle continues with further reduction in sales through to the depression phase where cash flow becomes more under stress and the cost of doing sales reduces the profit available. At some point the bottom is reached which is the trough which finds the business and the owners at their lowest, with maximum stress, but hopefully external factors allow for a recovery which then moves into the expansion phase again.

It’s helpful to identify with these two cycles where your business currently sits. For example, with the maturity cycle, if you’re in the cruise phase it’s worth considering how do you relaunch a product, service or revamp process’s, sales campaigns to broadening the opportunities for the business to grow again. If not the business in due course will move into the fade cycle which is neither ideal for the business owner or the business.

Another example with the cyclic business cycle, in the expansion phase the business tends to acquire more resource, more people, bigger premises, borrow more money and commit to expenses which facilitate further growth. This needs to be monitored carefully to ensure that those extra costs can be taken out of the business when a reduction cycle occurs, else you have a ratcheting effect where the expenses go up, but don’t come down with the reduction cycle and consequently profit and cash flow is squeezed accordingly.

Each phase has different strategies and being realistic and understanding where you are at in the cycle assists planning to ensure the next phase either has expansion and growth opportunity or ability to adapt to lower activity.

Predictions are with vaccination’s allowing the opening up of the economy, if you are well prepared there is great opportunity.

If you have questions in relation to the above, or any other matters, please do not hesitate to contact our office on 1300 620 345.

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