In today’s podcast, Andrew Schwartz from Stein Sperling and Stephen Halasnik from Financing Solutions discuss how business owners can build a successful company through growth, management, operations, and succession. Running a thriving business demands that owners should put in place the essential ingredients that foster growth and development. For example, operating agreements, succession plans, effective management, plus knowing the form of business entity you want to run right from the outset will help you grow your company past the $10 million in revenue per year benchmark.
Successful Business Through Growth, Management, Operation, and Succession
Building a successful business involves proper management, operation, and a succession plan that engenders sustainability. As a small business owner, you need to be flexible and have good planning and organizational skills in order to position your company for growth. Unfortunately, many small business owners just jump into building their businesses without an execution plan to guide them through their operations.
Little wonder many businesses don’t make it to the next ten years after their inception. According to 2021 data from the U.S. Bureau of Labor Statistics, approximately 20% of new businesses fail during the first two years of operation, 45% during the first five years, and 65% during the first ten years.
However, despite these pathetic figures, you can still build a thriving business that will grow past the $ 10 million in revenue per year benchmark if you diligently follow some basic business principles that foster growth and development. Read on as we walk you through the ingredients of building a successful business.
Understanding The Right Business Entity
When starting a business, you must first and foremost decide what form of business entity to establish. Depending on your business objective, the limited liability company (LLC), S corporation (S-corp), and C corporation (C-corp) are the business structures you might consider. The structure of your business is important because it helps determine how you operate your business down the line.
Not setting up your business properly from the outset can affect your company, especially when you want to sell it or enter into a partnership. For instance, if your business is registered as an S-corp, you might have restrictions on entering into a partnership or bringing on investors.
On the other hand, if you elected your business as an LLC, you cannot raise outside capital, through the issuance of a bond, for instance. Plus, you’re not allowed to have shareholders. So, to save yourself the stress, frustration, time, and money of backtracking to restructure your business properly during a transition, ensure you understand the various business forms and choose the one that best aligns with your goals.
In addition, each business structure has its tax consequence. For example, if you want to save money on tax, you might want to register your business as an S corporation.
Putting an Operating Agreement in Place
Having the right operating agreement will help solve many potential conflicts in your business. An operating agreement is a legally binding document that outlines how the company is managed, how it’s structured, who gets what, and who has ownership. For example, when a company owned by two people is growing and becoming more successful, undoubtedly, one person is working harder than the other. The person who devout much time in the business would want to take a larger share of the profit.
If the operating agreement does not factor in rewarding hard work by clarifying how the distribution of resources will be allocated, conflict is bound to occur down the line.
An operating agreement is critical for building a successful business because it helps entrench harmony among the owners, thereby limiting the chance of conflict that could disintegrate the entity. Additionally, an operating agreement defines members’ percentage ownership, distributive shares, voting rights, and transition in ownership.
Good management is at the heart of every successful business. No matter the size of your business, your company is bound to fail if you don’t have the right people at the helm of the affairs. Successful business owners have the right people that make the right decisions and ensure that their business takes advantage of opportunities.
Adequate management ensures that human and material resources are organized most effectively to achieve your business goals by directing and harnessing the efforts of the employees in a way it will bring maximum results. In addition, proper business management helps to reduce costs and waste by ensuring that minimum input is used to generate maximum results. It also ensures that experts and professionals take charge of all the strategic positions in the business.
Adequate financial management will help stabilize your business and allow more financial flexibility for you to cater to your company’s needs. You should be able to keep good credit, know your numbers, monitor your financial statements, and properly budget to build a successful business.
Below are some common practices that can help you keep healthy business finances.
- Separate personal and business finances
- Pay yourself salary
- Use accounting best practices
- Build your business credit score
- Explore small business loan options
Have a Succession Plan
Transferring your business to a new generation or business partner demands you have a succession plan to achieve that. In addition, a succession plan ensures that your business is in the right hand when you retire or when the unexpected occurs.
In other words, for your business to still run smoothly and be sustainable when you are no longer there, you must make proper planning by training those who can run the business to be prepared to take charge.
Learn About Our Guest
Andrew L. Schwartz is a principal in the business law department at Stein Sperling, a Rockville, Maryland-based law firm with offices throughout the Washington, D.C., metropolitan area.
Andrew concentrates his practice on business, employment, and real estate law, which includes drafting and negotiating contracts, partnership agreements including operating agreements and shareholder agreements, business entity formation and corporate governance, business disputes, and buying and selling businesses.
He is frequently asked to speak to business owners on business entity choice, navigating business controversies and disputes, and practical and legal aspects of business succession planning and employment matters.
Learn More About Financing Solutions
Financing Solutions provides an easy-to-setup unsecured business line of credit to small businesses. The small business financing product is a great cash backup plan that costs nothing to set up, nothing until used, and is inexpensive when needed. Financing Solutions is rated A+ by the Better Business Bureau and 5 stars by the BBB/Google Reviews.
Unlike a traditional business bank loan, our business credit line requires no collateral or personal guarantee (except in the cases of fraud) making it an excellent alternative business financing option. Small businesses often used their line of credit for short-term expenses, working capital, to make payroll, or for a business investment especially when business cash flow is temporarily down.
Get a free, no-obligation business line of credit quote by filling out our simple 2- minute business line of credit application here.
Remember: The time to set up a credit line is when you don’t need it.