The pitfalls of incorporating with Model Articles
Iwan Thomas | 10.01.2020
13.03.2018 Roger Bailey
You have started a company, managed the business through survival and it now exists as a viable business. At this stage your business has now firmly established its presence within the industry, is trading with both new and existing customers, and is likely to be seeing a consistent improvement in revenue, cash flow and profits.
Reinvention, innovation, merger or acquisition
The question becomes, what now? The next logical step for you is to endeavour to expand the business. If no action is taken, although the business could exist as a profitable business for some time, it is likely the business could stagnate and even enter decline. Therefore, you should be constantly thinking of ways to develop and grow the business.
One of the options available is to try growing the business organically. By drawing on the existing resources in the business, investing in resourcing additional people with the appropriate skills and ensuring the latest relevant technology needed for your business is in place, you look to reinvent the business or innovate from within to drive the expansion of the business. The investment needed may well require a refinancing of the business to increase funds readily available for this development phase.
If you deem reinvention or innovation an unlikely or inappropriate way of growing the business from the “steady” established phase, the alternative may well be to look at expansion through merging with a suitable competitor business or acquiring a business seen as complementing the existing business (a good “fit”). The merger combination may gain the merged companies increased market share and cost saving synergies often leading to a leaner, more efficient organisation with a larger turnover and prospects of achieving greater profitability. A strategically sound acquisition of a business which complements or extends its current offering could make the business more competitive which in turn should result in the business acquiring greater market share, increasing turnover and, in time, achieving greater profitability once the acquired business is fully integrated into the acquiring business.
Brexit and other political concerns are causing uncertainty in UK business influencing the decisions of potential investors and lenders. The long-term consequences of Brexit will not become clear for many years, and certainly not before the process of negotiating the United Kingdom’s exit from the EU and the post-exit relationship between the United Kingdom and the European Union begins. However, on the positive side for those looking to expand their business, interest rates are at historic lows and debt markets are relatively cheap. Consequently the cost of funding growth through borrowing from
financial institutions (such as banks) is relatively low. There is also private equity and venture capital funding available.
While focusing on developing your business to grow the customer base, market share, turnover and profits, there is always a risk of expanding too quickly and carelessly. Although, there is no crystal ball, and it is very hard to get an idea of what will be the results of your undertakings, you can give yourself the best possible chance of continued success through careful planning. Look at your resources, be realistic about the effort and cost and potential returns, and always keep an expert eye on how expansion might impact the current quality of service you provide your existing customers. Remember, while having a successful business model behind you is undoubtedly an advantage, it is not a guarantee that it will work elsewhere within other markets or that new offerings will result in the same success. The business graveyard is littered with organisations that took on too much and failed. Your task is indeed to take on new challenges as you look to constantly expand, but measure your risk and do your best to secure the business for all eventualities.