Increasing business growth: Seven key considerations

Here, Stuart Hatcher, partner in the corporate team at PwC explains the key considerations when you plan to grow your business.

There seems to be no slowdown in the spirit of entrepreneurship and the dream of owning and running your own business. Estimates suggest that in the US alone, 550,000 people each month are becoming entrepreneurs, and so far this year in the UK over 445,000 new companies have been created. While running their own business is an enduring dream for many, the excitement of following that dream is rivalled by the practical realities of making a success of your own business.

As a corporate lawyer advising fast growth businesses I often find myself explaining to clients that an entrepreneur often needs to adopt a conflicting mindset. While there is a need to plan properly to ensure that the value created in the business is retained when it comes to taking investment or selling the business, there is also a need to do the equivalent of planning for divorce on the day of the wedding so that if things don’t work out as anticipated the business can still go forward.

So, with that in mind, if I was going to create a list of key things to focus on, the following would be amongst the priorities that I’d recommend people address to give themselves the best chance of creating the next great business:

1. Decide a company structure

Having an operating vision for your business is crucial
Having an operating vision for your business is crucial

First and foremost, and this might seem trite and obvious, make sure your start-up has been started! By this I mean, make an actual decision to start your business up, take some advice about the correct structure to use for what your ambitions are down the line: is your business domestic only? International? a services business? a people business? The answers will have an impact on what structure to use. Too often businesses start without this being thought about and then major overhauls (time, money, hassle) are needed to create a suitable operation at a later date and which also leads to…

2. Secure your rights

Making sure your business owns or has the rights over the assets it is using is critical. Remember the domain name that is now key to your business that your colleague bought on their credit card? – make sure the business has that transferred to it; and the office space that your co-founder actually owns, which the business has no legal right to use long term? – get that resolved. These are examples of simple things that will be discovered in diligence, or when there is a falling out between founders and will hurt the business through price reduction or business disruption to address when discovered.

Further reading on growing a business

3. Control or have the rights to IP

Similar to the point above, but equally critical and hopefully obvious is to ensure that you own or control or have all rights over all intellectual property that the business is using and has created. This will involve anyone who has worked in getting the business started (including founders) to assign any IP created prior to the business being created, and any contractors or third parties engaged to help build or design something for the business to have agreed to assign those rights to the business. Then, you need to make sure every employee and every contractor and every third party assigns any rights over any IP that you have paid them to create. If this goes wrong then the valuable business that you thought you had built will look less valuable.

4. Shareholders agreement

Have a strategy for when shareholders disputes may arise
Have a strategy for when shareholders disputes may arise

Agree and sign a shareholders agreement. This can be a difficult part of a start-up. Everything is great, everyone is passionate about the business and everyone has a shared and combined vision and just wants to get the business going. Which sounds great, and it is until there is a difference of opinion, at which point, without a contract between the founders and investors about how you will deal with management, operation and control of the business, there will be lost management time and possibly litigation, deadlock and value destruction in trying to resolve the issue. So you should sit down and think about all the scenarios for the business where shareholder disputes may arise and address how you will deal with those: what happens if you want a dividend but someone else wants investment for new equipment? What happens if someone wants to leave, should they keep their shares and benefit from future growth they haven’t created?

“If someone leaves are you happy they could go and work for a competitor or start a competing business?”

What happens if new investment is needed? Dealing with this up front, at the start, is the best way to ensure that everyone knows where they stand and that the business is protected for future eventualities.

5. Get your compliance sorted

Think about compliance and make sure you get it right. Not getting compliance right is the most likely way that a business will run into trouble with customers, with regulators, with competitors and with potential investors. So take time to make sure your business has a compliance culture: draft terms and conditions so that you are contracting with customers correctly (this will be an early diligence question); make sure your employees have written contracts that protect the business (e.g. assignment of IP, enforceable restrictive covenants); ensure you are GDPR compliant; have a privacy policy; have Modern Slavery policies; ensure you are conducting recruitment and right to work checks correctly. Getting this right can take time, but getting it wrong will take more time to correct and usually involve a great deal more expense and time than dealing with it up front.

6. Incentivise your employees

Incentivising employees is often critical to recruitment and retention, with the key thing here to get advice on how to best structure incentives to make them as attractive to the team as possible. More importantly is to put anything agreed in writing and as soon as possible. Merely making (or receiving) a promise and an aspiration won’t be worth anything if it isn’t documented and then put in place.

7. Consider the best ways to get business funding

Knowing the best way to fund your business is key
Knowing the best way to fund your business is key

Finally, the thing to consider for any business is how to raise funds to grow and when to do so and more importantly why are funds needed and why at that time. There are pros and cons to raising finance by way of equity, or by debt funding and also if planning to bootstrap the business. Don’t automatically assume one route is better than another or not appropriate for your business, and don’t feel that because every business you know has taken one route that it is the right one for your business and your stage. Think about what you will give up and what you will benefit from each of those options (although funding options is an entire article and topic in its own right!).

Stuart Hatcher is a partner in the corporate team at PwC


Stuart Hatcher

Stuart Hatcher is a partner in the corporate team at PwC.