You’ve decided to take the plunge and launch your own business, but before taking a new product or service to market, you’ll need to ensure compliance with UK laws. Luke Rees, corporate associate at Lincoln-based solicitors firm Langleys Solicitors, has this advice for new entrepreneurs.
Thousands of people set up their own businesses every year. Some do it because they want to work for themselves, others because they have a great idea and have spotted a gap in the market.
Due to the competing demand for resources many start-ups simply do not have the time to worry about legal considerations, and this is often low down their list of priorities when starting out. However, all new business owners should be aware that failure to deal with certain legal issues at the outset can lead to significant and unnecessary problems later on down the line. All businesses require a certain amount of administration and paperwork, and it is essential for a new business that they have good professional advisers, such as a solicitor and accountant, to advise them on the finer details of complex issues such as finances, tax and business law.
The type of business you start will have an effect on how you run it and what rules you will need to follow. The three most common business structures are:
Operating as a sole trader means that you are self-employed. As a result, you are solely responsible for the business and for taking care of any debts, as well as paying for any stock or equipment you may need. However, you will also get to keep all of the profits from the business. You will need to keep records on any income and expenditure for tax reasons - being a sole trader does not mean that you are the only person involved in the business - so you can hire people to work for you and remain a sole trader.
If you start your business as a limited company, it will become an organisation with a number of members involved. If you are the director of the company, you will be responsible for running it. However, owning a limited company gives you protections that you would not have as a sole trader. For example, if the business runs up debts, you can’t be held personally responsible for them, unless it is a private unlimited company or you have broken the law. Running a limited company also means that you will have other taxes to pay, such as corporation tax. You will also need to split any profits with other shareholders in the company or enter into a shareholder’s agreement, which would handle the relationship between stakeholders.
A business partnership works similarly to a sole trader, except that it involves two or more individuals working, so responsibility for profits and debts is shared between the partners. This can be a good idea as it allows the partners to share the responsibilities without setting up a limited company. It also enables each partner to work to their strengths. For example, one partner could focus on the business and financial side, while the other deals with the client/customer-facing aspects.
Name and branding
Your business needs a name, and in the case of a limited company, this can be anything within reason. Obviously, the name has to be unique to your brand and not too similar to another company in any other sector. The name must also not include any offensive or insensitive words. Before naming your brand, check online with Companies House – your ‘perfect’ name might not be viable if you can’t register a website address or create a social media account for it!
Sole traders and partnerships can simply run under your personal name or names, but you will still have to be registered as a trading body.
You will need to find an accountant, or at the very least a bookkeeper, and open a business bank account. But don’t abdicate responsibility. You will need to keep a firm handle on the finances and have a pretty good idea of what your revenues, margins and gross profits should be, especially if you are looking for investment. This all costs money and there are many issues to consider when it comes to funding, such as how much equity you want, and whether you will offer your own personal assets as security. There are funding options such as grants, loans, banks, investors and crowd funding. Consider which is right for your business in its current stage of growth.
Cash flow is absolutely key for every small business. That’s where good credit lines can really help. If you are buying in goods or services before selling on, it’s helpful if you can delay paying your suppliers until you have been paid. Time is money, and chasing late payments can really take away from your day-to-day working. This is where a good set of terms and conditions can come in, as they act as a road map and demonstrate how your business operates. It is no use just copying some template terms and conditions from the internet, as these will not do what you need them to. Terms of business should include precise payment terms, and it is a good idea to keep them short when starting out to get cash in. You could also consider including an early payment discount of say 5% to give an incentive for businesses you are dealing with to pay early and swell your cash coffers. Terms should also give you the right to charge interest on late payments to compensate you if you are not paid on time.
Working from your spare room is limiting, plus it may be in violation of your mortgage or tenancy agreement. Should you buy or lease? What about insurance and business rates? Think about what works for you now, but also what premises you may need in the short and longer term as you grow. Buying a property is a huge commitment and requires some capital reserves. Entering into a lease can also tie you in for lengthy periods of time and lead to you personally guaranteeing to pay rent. When going down either route, you should consult a solicitor on important factors such as break clauses and repair obligations, and to ensure it’s clear what you are signing up for.
In addition to the important legal areas discussed above, there are a number of aspects of your business that require expert advice such as employing staff and protection of intellectual property rights. With all of the costs of setting up a new business it is understandable that many will try to avoid having to pay the fees of professional advisers during the early life of their business, but it is during these early days that such advice is crucial. Most professional advisers should offer fixed fees for their services - we certainly do at Langleys - so you can budget effectively and obtain the advice your business needs.