2020-06-09
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Business life cycle: how to start a successful business

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Posted on 24 April 2020

People start or buy, businesses for two main reasons: to do something they enjoy, and to make money. Most set off on their new journey full of optimism, seeing opportunities around every corner.

Sadly, the reality is that businesses are usually faced by problems at various stages of their life cycle. While it may be true that every problem can create an opportunity, it is also true that failure to solve problems quickly and effectively can cripple a business.

Our business life cycle guide looks at the upsides and downsides of running a business, describes familiar experiences and will resonate with most business owners and managers. Most importantly, we have written as problem-solvers rather than lawyers. When encountering difficulties, a business needs a problem solver and those of us who work in litigation most definitely fall into this category – applying the law is certainly one tool in our toolkit but by no means the only one.

Our approach to helping you resolve your difficulties can range from negotiation, negotiation backed by the threat of legal action, going straight to legal action, or it could be something completely different. What matters is that you can speak to someone with access to the full range of options available.

Starting a business

So, your business is already up and running, or you are in the throes of setting it up (or buying it).  What could go wrong?

We usually find that the key challenges most businesses find at the outset include creating their online profiles; raising their starting finance; and, when taking over an existing business, the restrictions and disputes that can often accompany a stable operation.

Nowadays, a business’ online profile is critical.  If you are taking over a business, it may have a poor reputation created, in part, by bad online reviews.  We can help you by dealing with the adverse reputation and advising you on how to improve the business’ reputation. We have helped many business counter reputational damage caused by adverse comments about their competence, safety, or reliability; as well as relatively trivial accusations over alleged poor behaviour of employees.  The internet enables other people’s feedback about your business, service levels, and employees (regardless of justification) to be broadcast immediately to a vast audience over which you have little, initial control. However, there are various means of recourse, and we have helped several clients resolve the impact of negative online reviews on their business

Alternatively, you may be trying to establish an internet profile for your brand new business idea.  This has its own set of challenges: other businesses may look very similar; others may have taken the domain name you want; or, despite your original idea, you’re struggling to stand out from the crowd.  You may need help protecting your intellectual property or dealing with website disputes and complaints from other businesses about your online profile. Regardless of the issue, we can help you frame an online profile that works for you and your business.  

Buying a business

Of course, rather than setting up your own business from scratch, you may be buying an existing business in part or whole. 

Most people acquiring businesses are careful to do their due diligence before purchase, checking the financial health of the business and determining its long-term commercial viability. What many people purchasing, or buying into, business fail to anticipate is what to do when something goes wrong, which, in our experience, is a common mistake.

There are many pitfalls we can help guard against including risks arising from previous business activities leading to disputes and litigation, or, the fallout from disagreements between business partners and directors which themselves can lead to a dispute. Internal conflict can severely damage a business.  Being prepared for these situations can save a lot of time, heartache and money by stopping these problems arising in the first place. 

A common concern faced by those buying into a business is how to deal with competition, particularly if former employees try and take your customers with them after they have left.  This can significantly impact a business’ cash flow and possibly bankrupt it if not dealt with immediately. 

All the above are relatively common occurrences encountered by most businesses at some stage of their life cycle. However, with some thoughtful planning and sound advice, you may not always be able to avoid them, but you can certainly mitigate their worst effects.

Running your business 

Running a business should be a pleasure; we all want to get up in the morning and go to work to do something we enjoy and find financially rewarding.

We also want to minimise the negative effect of any difficulties we encounter on both our level of enjoyment and on the business’ profitability. 

Problems with suppliers or end customers can be commonplace.  Whether you are a supplier, manufacturer or designer – or all three – you must ensure that your contracts are properly drafted and reflect what you are trying to achieve. Relying on your suppliers’ or end-customers’ contracts has the potential to disrupt your business severely and damage both its reputation and its finances.

How can we help solve these problems?  Anticipating where problems might lie is the first stage. You need to understand what arrangements you have in place, particularly concerning payment, delivery, performance, and quality, and find out if there are any weak points in the accompanying documentation. Remember: to be forewarned, is to be forearmed! Whether the issue is within your control, or not, speed of action; the clarity of advice and a strategic approach is critical to any resolution.

Management issues

Many people with a great idea rarely consider the practicalities of managing a business and soon find out that the role of a manager is not necessarily what they had in mind when they started up.  It doesn’t matter whether you’re managing a small business with a small number of employees or a board director managing a PLC or other corporate; or somebody in between. You will all face similar issues but on a different scale. 

The range of issues can be mindboggling, from dealing with disgruntled employees, or ex-employees trying to poach customers; keeping your data secure; competitors or ensuring that your cash-flow remains healthy and your debt levels remain under control.

Finance issues

Money makes the world go round, but a business without it quickly grinds to a halt.

Dealing with issues relating to your supply chain; cash flow; or concerns with your lenders before they become real problems is key to a business’ survival.

One of the lessons of the 2008 financial crash is how quickly financial problems can spiral out of control of even the most prominent business as those problems start generating their own momentum.

Of course, all businesses can, and will, use their bargaining strength to negotiate a better deal, particularly if their financial position is more robust than yours. We can help to strengthen your bargaining hand by identifying and addressing any financial weaknesses by supporting you in any disputes with funders, lenders or other third parties.

Lenders are not the only cause of money-related disputes for businesses.  Many other issues have their roots in poor financial planning. The right planning and the right reviews can avoid problems; however, if they occur, taking the proper action will help to solve them.  

Corporate divorce and departure

Even the most successful businesses or business careers come to an end.  All too often however the end comes sooner than someone expects, sometimes unplanned for and often unhappily.

Most business owners would prefer to exit the business via a sale to a third party in a planned and structured fashion. To achieve this, the devil is in the detail and making a mistake can plague the owner in retirement. A client of ours came to us after he had sold his business. He discovered, after the sale, that he had inadvertently signed up to terms that meant he was pulled back into the business, unpaid, to deal with various issues arising – which took over a decade to sort out.   We can help you avoid these sorts of problems occurring in the first place.

It should be straightforward to resolve a situation where one party is happy to leave, and another is happy to come in.  Providing the terms of entry and exit are amicably and adequately handled, the business should continue to operate successfully.  A corporate divorce where there is animosity on one side or both is much harder to manage. 

Often the problem stems from one individual who wants to exit the business as a result of a difference of opinion over strategy, falling out with other directors, or just being fed-up with being involved.  It is crucial for the future health of the business that the exit of a shareholder, partner, or director is dealt with professionally and quickly to avoid any adverse consequences, particularly if a breakdown of trust between individuals has precipitated the exit.

Corporate divorce requires careful handling.  An individual seeking to exit the business needs to understand the strength, or otherwise, of their bargaining position before starting negotiations with a prospective purchaser. For example, they must understand if they have a right to leave and if they have a right to have their shares purchased - or if they have little option but to walk away empty-handed. 

If you find yourself in a position where you want to exit from a business or believe you are being pushed out, or you want to remove an under-performing director or shareholder, it is prudent to ensure that all the weapons in your arsenal are primed and ready for action. Although no one wants to end up in a dispute, if you prepare for it, you have a higher chance of avoiding it. Our disputes’ specialists, who deal with these matters regularly, can help to steer you safely through the choppy waters of a corporate divorce regardless of whether you are leaving the business or are trying to remove someone else.  

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