Small Business Expansion: A Checklist

When looking to grow your company, it’s vital you avoid the common pitfalls that hold so many other businesses back

Small Business Expansion: A Checklist

When running a small business, it is hard to determine what is important and whether the costs are justified. As you look for investment or begin to scale up, these issues can become ever more important and may slow your development down.

There are several things every business should have in place, regardless of its infancy and these are just some of the key factors to consider:

Good advisors

Paying for a good lawyer and accountant often seems a lot when you first start out, but they can save you much more in the long run. When you are ready to invite in investment, expand or sell your business their paperwork is absolutely the key to your success. Choose those advisors carefully though because they must understand you and your sector.

If you need specialist advice, make sure they have experience in these areas and read their testimonials to make sure their approach suits you. You must lead your business, with their support – a lawyer or accountant must never seek to control how you operate as their goals and outlook will always be different to yours.

Founder’s agreement

A clear business plan between co-founders is often overlooked but necessary. Disputes can arise when a third party wishes to be engaged or one founder wants to sell (or take on investment) and the other doesn’t. A transparent agreement at the start is the only way to adequately prepare for the future and for that day when you move the company on to the next level.

Documentation

Ensure you have reliable and concise legal documents. We have seen small businesses using templates and/or fail to update their contracts as they expand. Client terms, staff restrictions, IP assignments and shareholders agreements are the bare minimum an investor will want to see and as you grow these are increasingly more important for the company’s protection.

A lack of employment and contractual documentation in the early days could hamper your chances of successfully expanding or securing investment. If you don’t have the confidentiality clauses or restrictive covenants, your business is exposed to significant risks. Staff or even co-founders can set up in competition or poach your clients and if you are ready to scale up this activity would be distracting and detrimental

IP protection

Every business needs to have intellectual property protection. The cost of registering trademarks and patents in the long run is far cheaper than trying to fight off infringement actions or re-branding if someone seeks to stop you using your own brand.

Keeping what could be one of your most valuable asset protected and secure is not only essential but it makes your company far more valuable. As you launch abroad or into a new market this can be even more important as your IP will be more publicly exposed and more valuable.

Finances

Not understanding your finances and protecting cash flow. I have seen people enter into contracts without real consideration of the terms and how they can perform the contract say for example when payment is an advance and the rest is made upon completion.

The bigger you grow and the larger the clients the more risk you expose yourself to. Your overheads increase, servicing a contract exposes your liabilities and yet cash flow and insurance remain even more important than before. Be proactive and ensure you understand the implications of each contract.

You are ready to expand how can you resolve any mistake already made?

  • It is never too late to secure concise legal agreements, register IP and take tax advice. Before you sell, expand or take on investment, we suggest addressing these areas of business as priority:
  • Agree terms with your co-founders by way of a shareholder’s / Partnership agreement. If you have this already make sure its concise, it’s been updated to cover the current business position and its bespoke to you.
  • Ideally discuss how you set up the business with an advisor as early on as possible.
  • Make sure your legal documents, such as your articles or share allocation, are done correctly and reflects your accounts and true running of the company. You would be amazed at how many companies make errors here that takes some time to unravel and if you get the attention of HMRC this may delay your plans.
  • Keep your accounts clear and take advantage of all reliefs and tax benefits.
  • Update the contract between you and your clients and with employees: Sounds obvious but it is usually the one thing that is done using a template or is out of date. As you expand or move into territories outside of the UK these can cause tremendous problems. There are many rules when contracting with consumers which can cause significant problems (including criminal liability and unenforceable terms) if not included.
  • Register your intellectual property
  • Make sure you have debt recovery policies and cancellation terms in place to protect your cash flow as you increase your overheads. Also, make sure your insurance is in place to cover your liabilities

Don’t get pressurised into making the wrong investment decision

Meet different advisors, explore all the options and understand what is available and what each practically will mean for you. What may appear too restrictive to a lawyer or accountant may still be worth the risk to your expansion, but also what may appear a dream offer could come with too many strings – juggle advice against what you need carefully.

You do not have to give control of your company away. If you are concerned about giving shares away consider other options available to you.

Consider all financing options such as:

1. Bank loans with low interest rates presently available

2. Debt financing such as corporate bonds;

3. EIS/ SEIS as tax incentives for investors

4. Joint venture agreements

5. Government and social grants

6. Tax reliefs

7. Other investments

Getting this right from the start or before you take the next stage to expand or secure investment secures your business and your personal interests. The money you can save by getting your house in order and having the best possible tax and legal advice means you can develop and expand without the usual risks effecting other businesses.


Karen Holden is the founder of A City Law Firm

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