Business Strategies and Planning.
Starting, growing, and eventually exiting a business all come with unique challenges and opportunities. Careful planning and the right strategic decisions at each stage of the business lifecycle are critical for long-term success. This article explores key strategies, highlighting the importance of legal, financial, and operational considerations along the way.
Business Start-up Strategies
Appropriate business structures
Having appropriate structures in place can assist a business and many ways. It is beneficial to get the structuring right from the start to avoid complications and additional restructuring costs as the business grows.
Consideration should be given to the appropriate trading entity. Usually, trading will be undertaken in a company, and this provides a good level of risk mitigation for business owners. In some circumstances, different companies may be required for different aspects of the business operations.
Business owners may also want to consider whether a trust to own the shares in their company or to own other assets is appropriate for their circumstances. This may further help mitigate their personal risk.
A combination of legal and accounting (such as tax efficiency) factors come into consideration when determining the most appropriate business structure.
Intellectual property strategy
Many businesses have registered or unregistered intellectual property as part of their business assets. This may include brand name, trademarks, designs and copyright materials. Occasionally it may also include patents.
Protecting a business’s intellectual property is vital to protecting the value of a company. Having appropriate protections in place will help to ensure a company’s IP cannot be used by other parties without consent. Franchise and license businesses are particularly reliant on the protection of their trademarks and processes, and it is important that they are legally protected.
Marketing support
Having advice from a marketing team is advisable for many businesses. Marketing professionals can assist brand development and strategy as well as traditional and online advertising.
Business Growth Strategies
Many businesses need help putting in place strategies to assist with business growth. Businesses often reach a growth plateau and want to grow further. Having the right advice can assist the business to grow in a strong, consistent and stable manner.
Professionals can assist business owners by advising on strategies to assist business growth.
Other than organic growth, some of those strategies may be:
Acquisition
Purchasing businesses from competitors, or businesses in related industries can be used successfully by business owners to grow at a faster rate. With the right acquisition planning and advice this can be a very effective growth strategy.
Capital raising - financing
It is common for businesses to require external funding to grow. Usually funding is sourced through banks, but occasionally also through non-bank lenders and private financing arrangements. Appropriate legal and accounting advice is important to ensure financing is structured in the most effective way.
Risk Mitigation Strategies
Business ownership inherently has certain risks. It is necessary to take some risk in order to develop and grow a successful business. However, with the right strategies in place these risks can be limited to an acceptable level. Some ways to limit business risks:
Terms of trade
A business should always have appropriate terms of trade for its customers. Terms of trade are a contract between the business and the customers. Whether supplying goods or services the terms on which businesses is undertaken need to be agreed with customers before the work is undertaken.
Terms of trade set out important matters such as when risk in the goods and services is transferred to the customer, limitations on the liability of the supplier, payment terms and consequences if the customer doesn’t pay. It is not advisable to do business without terms of trade.
Supply contracts
Likewise, a company needs contracts with its suppliers. Suppliers will often try to dictate terms to the customers but there is almost always a level of negotiation that can take place. A purchaser of a business should review the terms of supply contracts as part of their due diligence process.
Trusts
Trusts provide an important method of asset protection and risk mitigation for business owners. They can be incorporated into wider business and family asset structuring decisions.
Related party loans
A business owner will often inject money into their business when starting out or when the capital is needed for growth. In addition, business profits are often declared, but not paid out to the owner and will sit in the shareholders current account.
It is important that any money owing to a business owner is recorded in a loan agreement and appropriate security is taken over the business to make the owner a secured creditor. This will help put them in a priority creditor position in the event of a business failure and will give a greater chance of recovering any money owed.
Business Exit Strategies
There are multiple ways for a business owner to exit their investment. With proper planning, a great deal of value can be added by professionals for the outgoing and the incoming owner. Types of business strategies include:
Business sale
Often a business owner will simply sell the assets of the business to a third-party. This may be to a competitor or somebody outside of the industry. The assets will include the physical plant and equipment owned by the business, any inventory and any intellectual property. Protection of intellectual property is vital to be able to maximise the value of business sale.
The purchaser of a business will usually incorporate their own company to purchase the assets of the business. The vendor’s company will in most circumstances be wound up in time and with accounting input.
Share sale
An alternative to selling the assets of the business will be to sell the shares in the company that owns the business. This may take place when it is important for the existing contracts held by the business to remain in place with customers, suppliers and employees.
Purchasing the shares of a company can potentially hold more risks for a purchaser than purchasing the business assets. For this reason, appropriate warranties about the business are usually provided in the sale and purchase agreement by the outgoing shareholder.
Partial share sale
After a business owner may wish to sell some but not all the shares in the company. This can be part of a succession planning process where shares are sold over time to company’s employees. This can be a good way to grow and retain the best employees and at the same time initiate a gradual exit from the business.
Often incoming shareholders will not have sufficient capital able to purchase the shares outright so the owner may provide vendor finance to the purchasers to enable the shares to be purchased. Vendor finance is often repaid using dividends paid on the shares held by the purchaser. It is important that appropriate loan and security documentation is put in place when providing vendor finance.
Liquidation
Occasionally it may be appropriate for a business to be placed in liquidation. This may be because the company has become insolvent and there is no reasonable prospect of turning the business around. A well-managed liquidation process can help mitigate the extent of any losses to be suffered by the owner of the business.
Every business journey is unique, but the foundation of success lies in thoughtful planning and expert guidance. By implementing the right structures, protecting valuable assets, and navigating growth and exit strategies with care, business owners can maximise value and minimise risk.
If you feel you could use some specialist advice, don’t hesitate to contact the Commercial Team.
