Making the transition from going it alone to finally receiving some backing for your business is something that is a huge milestone. You are no longer on your own and since you have investors and shareholders in your business, you have a safety net and a constant stream of cash injections. The reason why you should be so elated when you have financial backing is because those that don’t stand a much larger chance of failing. Even if you’re idea and your business plan are excellent and you have thought about every scenario, when things get tough you need someone to help you. This is why for so many small business owners, getting multiple shareholders on board is vital. Not only will they be pumping in their own money to help your business, but you can still maintain overall control of your business. A company like Facebook has it’s founder and CEO owning 51% of the total shares, meaning than they still have overall power of the business. Yet they have multiple backers who will support the business when it intends to grow but also, during times of financial crises. There are multiple ways the bottom could drop out when you are trying to grow however.
An underdeveloped infrastructure
Something that shouldn’t take business owners off guard but unfortunately does, is the support of your infrastructure. Put simply, do you as a business have what it takes to increase in size and still function like you do now? This means you need to hire more staff to work in every department now that they will be receiving more tasks. You may also need to take a look at your company policies to renew them since the number of employees has increased therefore standards will need to be realigned such as for health and safety. Work procedures is perhaps the most important now that you have an increase in employees, you need office infrastructure like software, computers, file access and more to be readjusted.
All of these things cost money, and although it may not seem like it they are perhaps the biggest expense in any growth plan. A few hundred here, and few thousand there will all add up to you spending tens of thousands on your infrastructure. Hence why having shareholder meetings when you are planning an increase in company size is vital. They will need to pour money into their position since the cost of running the business and profits are growing. It’s at this time some may want to sell off their shares which is why you should inform investors of this planned growth early. Some may say you should do this when it’s time to renew a contract with shareholders but growth and expansion can often not wait so keep everybody in the loop of your aims.
A sudden gap
One of the most unexpected things that can occur to your business in the middle of a growth and expansion period is a shareholder passing away. In the event of something like this happening, you should have secondary measures in place. Suddenly any amount of your business that the shareholder was supporting is in jeopardy. This puts the entire business brakes into action and you may need to rethink whether or not now is a good time to expand. Yet you do have the option of shareholder protection at your disposal. This is a policy that you can take out along with the agreement of the shareholders themselves. You need not pay for the policy by yourself at all as it makes sense to protect the business this way.
What happens is, in the event of a shareholder suddenly not being able to perform their duties, much like an insurance plan this policy kicks into action. Whatever amount that shareholder was responsible for in terms of investment, the policy will cover. For example if the shareholder owned 20% of the shares and they were valued at $2 million, the policy will pay this sum out to the holders. This allows your business to continue functioning and growing if needed. Use this money to stay on track with your expansion while in the meantime, looking for another shareholder to take up the sudden gap that has been created.
There are many things that can cause the bottom to drop out when you’re going through an exciting growth and expansion plan. However there are countermeasures you can utilize to make sure that you have a safety net should an unwanted surprise occur. This can be in the form of a shareholder insurance policy just in case if one were to suddenly no longer be able to support the business.
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