Business Life Cycle (2023)

The five stages of a business' life

Written byJeff Schmidt

Updated March 4, 2023

(Video) Business Life Cycle

What is the Business Life Cycle?

The business life cycle is the progression of a business in phases over time and is most commonly divided into five stages: launch, growth, shake-out, maturity, and decline. The cycle is shown on a graph with the horizontal axis as time and the vertical axis as dollars or various financial metrics. In this article, we will use three financial metrics to describe the status of each business life cycle phase, including sales, profit, and cash flow.

Business Life Cycle (1)

Image: CFI’s FREE Corporate Finance Class.

Phase One: Launch

Each company begins its operations as a business and usually by launching new products or services. During the launch phase, sales are low but slowly (and hopefully steadily) increasing. Businesses focus on marketing to their target consumer segments by advertising their comparative advantages and value propositions. However, as revenue is low and initial startup costs are high, businesses are prone to incur losses in this phase.

In fact, throughout the entire business life cycle, the profit cycle lags behind the sales cycle and creates a time delay between sales growth and profit growth. This lag is important as it relates to the funding life cycle, which is explained in the latter part of this article.

Finally, the cash flow during the launch phase is also negative but dips even lower than the profit. This is due to the capitalization of initial startup costs that may not be reflected in the business’ profit but that are certainly reflected in its cash flow.

(Video) A Company's Lifecycle Model - A Practical Example

Phase Two: Growth

In the growth phase, companies experience rapid sales growth. As sales increase rapidly, businesses start seeing profit once they pass the break-even point. However, as the profit cycle still lags behind the sales cycle, the profit level is not as high as sales. Finally, the cash flow during the growth phase becomes positive, representing an excess cash inflow.

Phase Three: Shake-out

During the shake-out phase, sales continue to increase, but at a slower rate, usually due to either approaching market saturation or the entry of new competitors in the market. Sales peak during the shake-out phase. Although sales continue to increase, profit starts to decrease in the shake-out phase. This growth in sales and decline in profit represents a significant increase in costs. Lastly, cash flow increases and exceeds profit.

Phase Four: Maturity

When the business matures, sales begin to decrease slowly. Profit margins get thinner, while cash flow stays relatively stagnant. As firms approach maturity, major capital spending is largely behind the business, and therefore cash generation is higher than the profit on the income statement.

However, it’s important to note that many businesses extend their business life cycle during this phase by reinventing themselves and investing in new technologies and emerging markets. This allows companies to reposition themselves in their dynamic industries and refresh their growth in the marketplace.

Phase Five: Decline

In the final stage of the business life cycle, sales, profit, and cash flow all decline. During this phase, companies accept their failure to extend their business life cycle by adapting to the changing business environment. Firms lose their competitive advantage and finally exit the market.

Corporate Funding Life Cycle

In the funding life cycle, the five stages remain the same but are placed on the horizontal axis. Across the vertical axis is the level of risk in the business; this includes the level of risk of lending money or providing capital to the business.

(Video) Business Life-Cycle: Overview of all 5 Stages

While the business life cycle contains sales, profit, and cash as financial metrics, the funding life cycle consists of sales, business risk, and debt funding as key financial indicators. The business risk cycle is inverse to the sales and debt funding cycle.

Business Life Cycle (2)

Image: CFI’s FREE Corporate Finance Class.

Phase One: Launch

At launch, when sales are the lowest, business risk is the highest. During this phase, it is impossible for a company to finance debt due to its unproven business model and uncertain ability to repay debt. As sales begin to increase slowly, the corporations’ ability to finance debt also increases.

Phase Two: Growth

As companies experience booming sales growth, business risks decrease, while their ability to raise debt increases. During the growth phase, companies start seeing a profit and positive cash flow, which evidences their ability to repay debt.

The corporations’ products or services have been proven to provide value in the marketplace. Companies at the growth stage seek more and more capital as they wish to expand their market reach and diversify their businesses.

(Video) How to Prepare for the 4 Stages of Business Life Cycle

Phase Three: Shake-out

During the shake-out phase, sales peak. The industry experiences steep growth, leading to fierce competition in the marketplace. However, as sales peak, the debt financing life cycle increases exponentially. Companies prove their successful positioning in the market, exhibiting their ability to repay debt. Business risk continues to decline.

Phase Four: Maturity

As corporations approach maturity, sales start to decline. However, unlike the earlier stages where the business risk cycle was inverse to the sales cycle, business risk moves in correlation with sales to the point where it carries no business risk. Due to the elimination of business risk, the most mature and stable businesses have the easiest access to debt capital.

Phase Five: Decline

In the final stage of the funding life cycle, sales begin to decline at an accelerating rate. This decline in sales portrays the companies’ inability to adapt to changing business environments and extend their life cycles.

Understanding the business life cycle is critical for investment bankers, corporate financial analysts, and other professionals in the financial services industry. You can benefit by checking out the additional information resources that CFI offers, such as those listed below.

Additional Resources

Thank you for reading this guide on the 5 stages of a business or industry life cycle. To help you advance your career, check out the additional CFI resources below:

(Video) Business Life Cycle


What are the 5 stages of business life cycle? ›

Whether you are a new business owner or have run your small business for years, it is wise to familiarize yourself with the five cycles of change: startup, growth, maturity, transition and succession.

What are the 4 stages of a business life cycle? ›

Identify Your Place in the 4 Stages of Business Growth

Startup. Growth. Maturity. Renewal or decline.

How do you describe a business life cycle? ›

The business life cycle is the progression of a business in phases over time and is most commonly divided into five stages: launch, growth, shake-out, maturity, and decline. The cycle is shown on a graph with the horizontal axis as time and the vertical axis as dollars or various financial metrics.

What are the 7 steps of product life cycle? ›

Product management life cycle in seven main stages: Idea generation and management, research and analytics, planning, prototyping, validation, delivery, and finally, launch.

What is business cycle and phases? ›

A business cycle is the repetitive economic changes that take place in a country over a period. It is identified through the variations in the GDP along with other macroeconomics indexes. The four phases of the business cycle are expansion, peak, contraction, and trough.

Why is the business life cycle important? ›

It is important that you properly identify the life cycle stage of your business so that you can plan appropriately and establish realistic goals for the future. The four life cycle stages for a business are start-up, growth, maturity, and decline.

What are the types of business cycle? ›

There are two types of business cycle: The classical cycle refers to rises and falls in total production. The growth cycle is concerned with fluctuations in the growth rate of production.

What is an example of a business cycle? ›

A business cycle example is the real-world Great Recession in the late 2000s. Before the onset of the Great Recession, the U.S economy was experiencing the expansionary phase of the business cycle, marked by a rise in the GDP, low inflation, and increased employment.

What is the cycle of success in business? ›

The cycle of success shows that what you do impacts your results, which then impact the choices you make, impacting your results. In other words: What you put in, you take out. This applies to life in general, and can more specifically be tied into the business success your company experiences.

What are the steps of the lifecycle? ›

What are the five stages of the project life cycle?
  • Initiating.
  • Planning.
  • Executing.
  • Monitoring/controlling.
  • Closing.
Mar 18, 2022

What are the six phases of lifecycle? ›

There are usually six stages in this cycle: requirement analysis, design, development and testing, implementation, documentation, and evaluation.

What are the six stages of the life cycle? ›

The six Charting the LifeCourse life stages are:
  • Prenatal/infancy. From conception through the earliest years of life or babyhood. ...
  • Early childhood. The time in a child's life before they begin school full-time. ...
  • School age. The years from kindergarten through middle school. ...
  • Transition to adulthood. ...
  • Adulthood. ...
  • Aging.

What causes the business cycle? ›

The business cycle is caused by the forces of supply and demand—the movement of the gross domestic product GDP—the availability of capital, and expectations about the future. This cycle is generally separated into four distinct segments: expansion, peak, contraction, and trough.

What are the factors affecting business cycle? ›

Business decisions, consumer behavior, interest rates, and eternal matters are the important factors of a business cycle.

What is the conclusion of business cycle? ›

Conclusion. In a business cycle, the 'Expansion' is measured from the trough (or bottom) of the earlier business cycle to the peak of the current cycle. A recession is measured from the peak of the current cycle to the trough of the next cycle.

What is the purpose of a life cycle? ›

A life cycle approach can help us make choices. It implies that everyone in the whole chain of a product's life cycle, from cradle to grave, has a responsibility and a role to play, taking into account all the relevant impacts on the economy, the environment and the society.

What are life cycles important? ›

individual organisms die, new ones replace them, which ensures the survival of the species. During its life cycle, an organism goes through physical changes that allow it to reach adulthood and produce new organisms. Since these changes are common within a species, they can be grouped into stages of development.

How do you manage the business cycle? ›

A business cycle is the periodic growth and decline of a nation's economy, measured mainly by its GDP. Governments try to manage business cycles by spending, raising or lowering taxes, and adjusting interest rates. Business cycles can affect individuals in a number of ways, from job-hunting to investing.

What is the 5 step business process? ›

In order, there is a cycle to follow to implement continuous improvement into an organization. It's called the business process lifecycle. As the name says, it is a cycle in an endless way. The steps are modeling, implementation, execution, monitoring and optimization.

What is the stage 5 in the information life cycle? ›

Destruction. The volume of archived data inevitably grows, and while you may want to save all your data forever, that's not feasible. Storage cost and compliance issues exert pressure to destroy data you no longer need.

What are the 5 stages of business lifecycle and its needs of possible consulting projects? ›

Every business goes through 5 stages in its life cycle: development, startup, growth, maturity, and decline or renewal. Each phase brings about its own challenges. Therefore, understanding each of these stages makes a huge difference in the strategic planning of your business.

What are 3 key business processes? ›

Typically, key processes are operational processes that fall within the following buckets: Developing vision and strategy. Developing and managing products and services. Marketing and selling products and services.

What is basic business process? ›

A business process is defined as a collection of business tasks and activities that when performed by people or systems in a structured course, produce an outcome that contributes to the business goals. A business process includes at least one of, but not limited to, the following elements: task/ activity. system.

What are the four core business processes? ›

Core processes are sometimes also referred to as “primary processes,” and they compose the main activities of the business. These include marketing, sales, production, distribution, and customer service.

What is the lifecycle process? ›

A life cycle in business follows a product, business, or industry from development to decline. Product life cycles are the most common and include the following stages: development, introduction into the market, growth, maturity, and decline.

How many stages are in the lifecycle? ›

As mentioned above, there are four stages in a product's life cycle - introduction, growth, maturity, and decline – but before this a product needs to go through design, research and development.

What are the six 6 steps to have a better business planning process? ›

Here are six key steps that can lead to an effective plan for your business:
  1. Step 1: Establish your mission. In essence, your mission statement explains why your business exists. ...
  2. Step 2: Analyse your SWOT. ...
  3. Step 3: Develop a plan. ...
  4. Step 4: Create a budget. ...
  5. Step 5: Put it in writing. ...
  6. Step 6: Make it a living document.

How many stages are there in a successful business model? ›

Every new business and start-up, big or small, goes through the five stages of business growth. These phases include existence, survival, success, take-off, and resource maturity. All stages of small business growth come with challenges that every company will have to overcome.

What are the important phases of developing business model? ›

The key components of a business model should include relating to your target customers, the market, organization strengths and challenges, essential elements of the product, and how it will be sold. Establishing this foundation guides the next planning tool — your product roadmap.


1. Product Life cycle, 4 stages of product life Cycle
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5. Small Business Life Cycle - Start Up Stage
6. 1.5 Industry Life Cycle
(MeanThat & Authentic Data Science)
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