Four Stages of a Business Cycle

With the passage of time, a business enters into different phases of its life. Along with time, other factors too play an important role in the life cycle of a business. A major concern for companies is to stay in the market, create business opportunities, and survive threats from competitors.

To capture the market, a business has to go through rigorous courses and policies that help it to gain popularity. With the introduction of a business in the market, it becomes essential to implement proper planning for its growth and development.

Every business has its own set of guidelines and processes designed for its efficient functioning. However, in general, any business is affected by various factors like demand and supply, consumer confidence, availability of capital, etc.

These factors affect the business in such a way that it experiences a periodic rise and fall. There are basically four different phases in the life cycle of any business, which are:

This is the initial phase that a business experiences in the market. Many policies have to be framed in this phase. It is also referred to as the expansion phase, as the business tries to establish its niche in the market.

It happens to be the time when business owners start establishing their brand identity and generate brand loyalty within their customer base using intelligent marketing practices.

This stage is marked by a rise in consumer demand and a consequent requirement of increased inputs in terms of production, manufacturing, and general operations to keep up with the rising sales and continued growth.

The growth phase, being marked by increased sales, shows a rise in profit margins and firmly establishes the brand name of the business in the market.

The company has to work on its strength and look out for the potential threat of competitors. The focus of this stage is to maintain the core customer group and build trust and goodwill amongst the customers.

A few common features of this phase include:

• Increasing demand
• Increased income
• High competition
• High advertising
• New policies
• Creation of customer loyalty

After the introductory phase of the business gets over, it enters its second crucial juncture, the 'peak' phase. In this stage, a business reaches its maturity point and is well established in the market. Sales reach their apex and not much effort is required to increase turnover.

However, intensive marketing is a must to enhance the overall market position, or at least maintain the current market position. This is the phase where the company would want to branch out into other ventures and dabble with product innovation. This is the business stage where the profit margins are fairly stable.

Some prominent features of this phase include:

• High demand
• High supply
• High income
• High market share
• Less advertising
• Strong brand image

After enjoying maturity for sometime, there comes a phase when the market sales of a business decline. There can be a lot of factors responsible for the degradation of the business.

It can be government policies, new strong competitors, labor problems or any other unfavorable condition that can bring about a drastic change in the economic stability of the business.

Recession becomes a stage where the company struggles to keep its stand in the market. This stage shows a loss in market share and the business is said to be in a 'phase of recession'.

Related features of this stage are:

• Decrease in demand
• Loss in sales
• Low income
• Loss of market share
• High competition

In a business cycle, the trough stage is exactly opposite of the peak stage. In this stage, the business reaches its lowest point in terms of market share and sales. During a trough stage, prices and profits start falling. There is less selling, buying, employment and production.

In this stage, consumer demand and confidence level remain low. High competition in the market leads to the downfall of business. If the trough phase becomes severe then it is known as depression.

Common related features include:

• Lowest income
• Loss in customer confidence
• High unemployment
• Cost cutting and reduction
• Fall in market share

The last phase (Trough) seems like a vivid description of the end of a business. But this may not happen in most cases, as businesses often frame new policies and start expansion policies to enhance growth.

When businesses frame such policies, this stage becomes the recovery stage, which, if successful, takes the company back to the growth stage, thus completing the cycle. Proper planning and decision-making is essential to make the business prosper again.

These four stages of a business cycle are experienced by every business, big or small, though not necessarily in the same order. Sometimes the business flourishes and gains maximum profits, while at times the business is on the verge of a complete meltdown.

It is the attitude and the positive perspective of successful businessmen that keeps every business going through the ups and downs, yet always aiming for the pinnacle of success.