How the legal needs of small businesses change over time
For small law firms that are looking to take on additional cases, small businesses can provide a steady flow of legal work. But like many other clients, the legal needs of small businesses continuously evolve and change over time. Law firms that serve small businesses have to anticipate what legal issues may be approaching and prepare accordingly. To do this more easily, attorneys will benefit from understanding where their clients are along the business lifecycle.
The business lifecycle is a representation of an organization’s development divided into five stages: launch, growth, shake-out, maturity, and decline. Each of these stages comes with new legal challenges that small law firm lawyers should familiarize themselves with ahead of time in order to maximize efficiency and serve their clients’ needs well.
Stage 1: Launch
The lifecycle of every small business begins in the launch stage when the company is being conceptualized and the early days of operations take place. During the launch stage, legal advisors must guide their small business clients through decisions that will critically impact the future of their business. It is especially important that lawyers be able to clearly explain how each choice will affect all of their options going forward.
For example, a lawyer may guide a new entrepreneur in choosing what type of entity they should register. There are a wide variety of options in each state, and each type of business entity comes with different tax treatment, investment advantages, and decision-making formalities. Being prepared to explain these issues and their ramifications is especially important during the launch stage.
Stage 2: Growth
Growth is the most exciting part of the small business lifecycle, as it encompasses the period when a business is enjoying their first morsels of success. As businesses enter the growth stage, they often need to bring on additional hands. Adding and managing new employees invites a whole host of legal issues with which lawyers can help.
Early on, legal counselors often act as their small business client’s HR head because of all of the different issues that may come up. These could include defining rules around recruiting and interviewing, writing job offers and rejection letters, establishing onboarding processes, and keeping the company from running afoul of wage and hour laws. There are many other legal issues that come up during the growth stage, mostly related to expanding operations.
Stage 3: Shake-out
The shake-out stage can be framed as the final part of a small business’s growth. In that light, many of the legal matters lawyers prepare for during this time are related to the previous stage. Local businesses in the shake-out stage will usually be focused on optimizing their own performance in order to meet the demand for their product and contend with their competitors.
To do this, many small businesses will look to move into their own permanent space. This means their legal counsel should be ready to guide them in real estate matters, review leases, and write-up purchase agreements.
Stage 4: Maturity
Small business owners who reach the maturity stage are most interested in maintaining that success for as long as possible. They are warding off other competitors and searching for the next innovation that could push their growth even further.
When a small business gains a level of dominance and recognition in the local market, they tend to spend more time handling legal challenges and disputes. These could come from wrongful termination claims, intellectual property challenges, or dissatisfied customers seeking legal recourse. Lawyers must have the tools they need when these types of issues arise, and the knowledge to help their SSB clients respond and prevent any serious losses.
Stage 5: Decline
The decline stage is the point where businesses begin to lose value. Here, the goal of most operators is to either rejuvenate their business and extend the lifecycle or limit their liabilities while exiting the market.
A lifecycle extension may be done by rebranding, investing in new technologies, or launching a new product to reposition themselves in the local market and refresh their growth. In these cases, lawyers may have to revisit legal tasks they have dealt with in earlier stages to ensure the continued success of their clients. But if these efforts fail, a business owner may have to take more drastic measures to break even.
There are several ways small businesses can cease operations, but not all of them are necessarily bad. While some businesses will fold, others may be sold to another entrepreneur at great profit to the original owner. This means that law firms representing small business clients in this challenging stage must be able to either help them wrap up operations and dissolve the entity or navigate the process of selling their enterprise. But the adventurous nature of entrepreneurs leads many to start this lifecycle over again. And when they do, they will often come back to the law firms who have proven they can keep up with their legal needs.
There are numerous legal situations small law firms could encounter as their local business clients progress through the business lifecycle. Those who fully understand each of these stages will be able to anticipate their clients’ needs, serve them well, and benefit from a continuous stream of legal needs.