As an accounting firm, we have been exposed to a lot of businesses. We’ve seen very large businesses and we have seen single-person startups. Our experiences tell us that different businesses have different needs depending on which stage they are currently in.
We have structured what we offer in the way that we have because we've identified 5 financial stages of business growth that almost all businesses progress through.
It's important to understand where your business is and which stage you expect to grow into. It gets messy when businesses attempt to skip steps and get bigger than they are ready to be. The financial plan of a business works best when it is taken one step or stage at a time.
Among other issues, attempting to skip stages often means you end up spending money for accounting and financial services that you are just not ready to implement.
As you study the 5 financial stages of business growth we cover below, think of them as you would the stages of climbing a mountain. If climbing a flight of stairs causes you to breathe heavy, you’re probably are not ready to scale Mt. Everest!
The Base Camp
In mountain climbing, the base camp is the staging area where climbers get their equipment ready and plan their route. The base camp is protected from the harsher conditions found higher up the slope.
In business, someone at the base camp level may be a freelancer. They have a skill that they contract out and clients pay them for their work. They may still be working a day job and moonlighting in the evenings and on weekends.
If you're at this stage you may not even be considering building something big. You are just trying to generate a little income to help pay the bills.
Your accounting system may be a simple spreadsheet that you use to categorize the revenues and expenses from your online bank account. You can probably keep up with the essential figures without dedicated financial software, but if you want to go beyond being a freelancer that earns a little on the side, it's time to invest in an accounting system.
The Anchor
When someone is starting to climb a mountain, it is important to establish an anchor. You need a firm point from which you can pull and push to gain more altitude. For this reason, we call the second stage of business development the anchor stage.
An anchor is a mountain climbing tool and in the business and financial world it is the stage where you establish a foundation and line up the proper tools to get started up Mt. Success. It is at this stage that a business person may think, “Hey, I could really make this work.”
If you're at the anchor stage, you may want to file the paperwork to become an LLC or a full corporation. You should apply for any applicable licenses and permits. If you haven't done so previously, you will want to open a separate business bank account and stop co-mingling their personal and business finances.
The Ascend Stage
There comes a time in mountain climbing when you just need to make vertical progress and stop hanging around the foothills. In the first two stages, money is tight and business owners do most of the work themselves.
Businesses in the ascend stage establish their legitimacy. In this stage, the owner is beginning to realize that it is more efficient to hire skilled workers while he or she keeps the vision moving forward.
Businesses at the ascend stage may hire their first employees or establish strategic partnerships. If you're at this stage, you should consider contracting with an attorney, an accountant, and other professional services. Just like climbing a mountain all alone is risky, you will want others on your team as you build a business to help you navigate your ascent.
The Peak Stage
Businesses that have reached the peak stage are positioned to reap the rewards they have been working toward. They see substantial profits and need help knowing how to reinvest that money for the best return. The business has a strong internet presence with followers in the 5 figures. And they have a large following on the major social media platforms.
The business looks like a success, they are standing at the top, however, as they peer into the mist above them, they see there is still more mountain. If this describes you, you can be content in what you have already accomplished and start to climb down or instead can go for it all.
The Summit Stage
Businesses reaching this final stage of growth are at the penultimate of their industry. The business owner has probably transitioned into the job of a CEO. He has hired someone to keep operations running smoothly, a COO. He needs a CFO also.
If your business is at this stage, it's even more important to have your finances in order, and a CFO can help you with top-level strategic financial planning.
The Bottom Line
As you can see, all businesses go through distinct stages and it's important to take them one step at a time and to add the financial services you need as your business progresses from one level to the next.
