Growing pains or growing gains?
Decision points are a time to review what worked in the past, review options available now, and make choices for the next part of the long term plan. When you started your business, you had decisions to make about the type of legal structure you wanted, the amount of investment you wished to make, and a marketing plan. Each of these decisions now needs review for expansion. Technology changes, taste in the market place changes, and new options may be available to your business.
Decision points usually involve expansion of some kind– employees, partners, additional locations, production lines, distribution markets. Minnesota has fertile ground for such expansion in the form of support from every sector. Each industry has a different availability, however, one of the first sources to tap is your industry association. There may be grants, contract preferences, market niches, as well as competent advisors available to you.
Being a woman in business, perhaps it is time to determine whether you should be seeking certification as a majority owned women’s business in Minnesota through the Women’s Business Development Center. Benefits include access to contracts available to minority owned businesses, publicity, tradeshow participation, use of the logo designation and shipping discounts. Eligibility is a documented 51% ownership by a woman or women. Access to corporate and government contracts may be enhanced by designation as a minority owned business, and the process of application may serve as an organizational tool for the business itself.
Addition of employees creates an additional layer of administration to your management. The Decision at this point is to determine if you wish to contract out the administration of your payroll or other or human resources functions, or expand your management expertise in house.
The cost and benefit analysis cannot be overlooked because the costs are guaranteed to occur and the benefits need to be forecast in order to maintain the profit margin. Consultation with experienced human resources professionals should occur. These might be SCORE, your industry association resources, the MNSbdc, or other resources.
In addition to the management and financial accounting issues, when employees are added, there is an added layer of insurance to consider, including workers’ compensation, employee benefits, and liability. Consultation with your insurance professional will assist in making the decisions necessary to protect your business. These added costs need to be calculated, in determining your forecast for future profits.
Expansion of any kind often involves seeking additional space. A pitfall of a growing small business is to expand to additional office space or warehousing locations, before considering the financial impact to the bottom line, of those moves. Adding additional overhead is a hard recurring cost. It requires additional income to cover those costs, in order not to cut into profits. Capital investments versus recurring costs need to be closely evaluated, so that a superstructure can be supported by the business. Examination of the lease technicalities, including type of lease, such as triple net lease, recurring lease terms, restrictions of use, etc. Once you have a legal document, it is the document that controls, not the discussion you may have had with the potential lessor. So all concessions discussed need to be included in writing as an amendment to your lease, or you will not be able to rely on those concessions if there is a future dispute with your landlord.
Additional of partners, to increase capital contributions, may also be a method of expansion. If you have watched the Shark Tank, you may have some idea of the power that capital contributors have over the business. If you are a 51% owner and you have put your homestead on the line by taking a second mortgage to finance your business, you have a better chance of recovering money from your business, than if you have a 49% interest. As a minority shareholder you have rights, but the majority controls. The decision to make at the time of securing increased capital contribution is what protection you may need to protect your investment and to protect your control of the direction of the business. The Shark Tank people are very clear about what they will or will not do with their capital investment to your company; other investors may not be so clear. Or you may have a personal trust relationship which may lead you to ignore the legal and financial protections. Good business means good contracts and good will. If there is good will, there will be no trouble in getting a good contract.
Use of advisory services may help to clarify the questions and the cost benefit analysis, as well as legal ramifications of contracts and leases, etc. The Minnesota Small Business Development Centers offer hands on assistance in projecting needs, costs and benefits. Their services are free of charge, and have the depth of reliable data, and experienced advisors. Some centers may take your business as a “project” for business students to analyze and use for their own theses for their business degrees, which is a win/win proposition for your business.
When you thoughtfully work through your Decision points, you can turn growing pains into growing gains.
Mary Sherman Hill | Mary Sherman Hill Law
prenuptial agreements, marital dissolution, custody, child support, family
adoptions, wills and probate, incorporation of small business, and general