As your business grows…

Five key elements to avoid business growth consequences

Lisa Lowe

Growth impacts a business’s organizational structure and its operations. Expansion may require the creation of new posts and departments, additional employees, increased internal communications, expanded factory and office space, new equipment and additional inventory. Certain legal and tax considerations frequently arise as your business grows. The following discussion is not intended to be exhaustive, particularly as additional issues, such as industry-specific considerations, can also apply.

Business structure

As your business grows, revisit your choice of business structure. Washington has a new law that allows conversion between entity types, resulting in a much more straightforward approach to making adjustments in structure as a business grows. As you review the different types of business organizations, weigh the pros and cons of each business structure to make sure your legal business formation continues to meet your growing business needs. The benefits of the most common business structures are:

Sole proprietorship – easy to set up, simpler tax filing process;

Partnership – simple operating structure, tax benefits;

LLC – personal liability protection, tax benefits, management flexibility; and

Corporation – personal liability protection, maybe the best structure for seeking outside investment, can help reduce taxes.

A natural corollary of reviewing your business structure is analyzing your current governance. Reviewing your company’s governing documents and determining whether or not they need revision or updating to continue to meet your business needs is crucial.

Licenses, permits and contracts

Don’t forget to review your licenses and permits and make sure that you keep your business legal with the right legal agreements, record-keeping and any mandatory reports that need to be filed with your state. To the extent your expansion includes more factory and office space, equipment or additional inventory, all of these components of expansion require leases or other contracts. For instance, as you review your current leases for factory and office space, you can build flexibility into your expansion options by retaining a right or option for expansion into adjacent space and by providing for a broader permitted use of your premises.

Human resources

Adding employees is another frequent element of an expanding business. As you look at hiring more employees, you will need appropriate processes and procedures in place. As an example, take a look at your employee handbook and assess its compliance with current laws. If you don’t have an employee handbook, seriously consider developing one that sets out your company’s policies and procedures. You will also want to review your benefits. For example, does your expansion impact your compliance with the Affordable Care Act? There are key differences in the provisions addressing employers with fewer than 25 employees, with up to 50 employees, and with 50 or more employees. Again, making sure that you are in compliance with all business law and regulations is imperative as you grow your business.

Technology

As a business owner, it is vital that you understand and use advanced technologies. They can help increase your business efficiency and even expand operations. Examples of available technology to help your company stay competitive and continue to grow are accounting software, planning software or tools, time tracking software, email management and mobile Internet access.

Exit Strategy

Although it may not seem to make sense while your company is growing, successful companies think as much about how to get out of business as they do on how to get into business. Putting together a team that includes your financial advisor, CPA and lawyer to assist in evaluating when or whether to sell your business, how to value your business and how to provide income for your long-term goals are keys to a good exit strategy.

The good news is that opportunity for growth appears to be on the rise and the business owner who has positioned herself well by considering the matters above will easily achieve success.

Lisa Lowe is a shareholder with Schwabe, Williamson & Wyatt. Lowe focuses her practice in all areas of estate planning, including trusts, guardianships and probate. She can be reached at alowe@schwabe.com or 360.905.1434.

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