Stages of Business Development
When we are born we’re call an infant, as we grow from infancy we grow into childhood, from childhood we grow into adolescence, and from adolescence we grow into adulthood. In the same way we grow and develop through the different stages of life so does a business. Every business undergoes a life cycle that is referred to as stages of business development. Hisrich et al., describes the three major stages of business development funding as: the early stage financing, the expansion or development financing, and the acquisition and leveraged buyout financing (Hisrich et al. 2010). Under each major stage there is a smaller stage that a business goes through. ...view middle of the document...
For example, in a study done by Lester & Parnell on AAA Construction, Inc., a repair/rebuild general contractor located in the southern part of the United States in Memphis, Tennessee. This company was founded in 1962 by Jack Hudson, who specialized in insurance-related construction work such as fire damages, water damages, burglary damages, and vehicle damages to residential and commercial buildings. When Hudson started the company he worked as a superintendent during the day so he could keep steady income, but on evenings and weekends he repaired damaged homes, calling on insurance claims’ adjusters and prepared new repair estimates (Lester & Parnell, 2006).
The Expansion or Development Financing:
In the second basic financing stage(the expansion or development financing) Hisrich et al. states that the funds are used as working capital, but there is no clear profits or cash flow (second stage). As the business transitions into the third stage the company is at breaking even or positive profit level and funds are used for major sale expansions, but the company is still private. While the business continues in growth it reaches the fourth stage and funds bridge financing to prepare to go public (Hisrich et al. 2010).
However, Churchill & Lewis labels this stage the survival stage. According to Churchill & Lewis, this stage has demonstrated that the business is a workable entity and the business has enough customers are satisfied with sufficient products or services to keep them. Churchill & Lewis also asserts that it is during this stage that the key problems shift from existence to revenue and expenses. It is also at this stage that some businesses remain in the survival stage earning marginal returns on invested time and capital or eventually go out of business either due to the owner giving up or retiring (Churchill & Lewis, 2006). While both authors describe this stage with some similarity, it is clarified best in Lester & Parnell study with AAA Construction, Inc... During the first stage of the AAA Construction company, the business increased and the company moved to a larger location, thereby transitioning to the second basic financing type. As the company grew, finances became the major problem because the growth of the company was being financed by the cash flow due to the company not having any commercial banking relationships. The only finances that the company received were payments from the insurance companies after the work was completed. Because of dwindling finances, Hudson began to target the most aggressive homeowner insurance companies in his market to generate more finances, which later seem to have been successful because the business again thrived (Lester & Parnell, 2006).
At this point Churchill & Lewis labels this stage three- success, this is where the owner decides whether to exploit the business’s accomplishments and expand, or keep the company stable and profitable, or simply pursue other outside interests...