Starting a business rarely involves a light-bulb moment and an immediate letter of resignation.
There is often a lot of heartache and anxiety involved – entrepreneurship is a quality that not everyone has, and some have more of it than others. It involves being prepared to weigh up risks and rewards and to go beyond what is comfortable. Few and far between are those without even a passing thought to paying their bills! But if you have it, it offers new opportunities ranging from higher earnings, kudos, flexible (although probably not shorter) working hours and the ability to be self-directing and self-reliant.
Before embarking on a new business venture there should be plenty of thought and research about the idea. There is lots of information just a few clicks away and friends and family will give you a critical opinion.
A few reasons why you might take the plunge are
- To provide specialist services that only you can do
- To exploit your creativity
- To turn a hobby into a job
- You have an idea for something new and innovative
- To be your own boss, perhaps through a franchise
- You are fed up by how badly “it” is done by others!
First things – It’s important to get your story straight
- This means having an articulate story to tell about what you are doing, why it fills a gap in the market-place and why it is better or different to anything else out there.
- This will help with marketing – if you can tell others what you are doing and why, you are already “selling it.”
- This will help with funding – be it formal “angel” investors, looking to risk some money on a new venture, or banks providing an overdraft or a start-up loan or friends and family providing seed money for print and supplies; investors will be more inclined to be involved if they understand what you are doing. If they understand your story and share your view that there is a positive chance in the marketplace, then they are likely to help you.
- This will help others, to help you. Lawyers call it taking instructions, advertising and marketing professionals call it being briefed, but it is the same thing – understanding the client’s story so they can give you the best advice and guidance. A concise and coherent “story” makes this process more efficient (cheaper!) and will get you a better service.
- This will help you focus on what is important and give you something to manage priorities and make judgement calls.
- Ultimately your “story” should morph into a business plan, which is your story with some realistic financial figures laying out how you expect the business to perform and what actions you intend to take to pursue such performance.
Second things – Dealing with the basics and being “compliant”
Whatever the commercial idea, you are now running a business as well as doing “your thing.” You need to comply with legal requirements and ensure your business is not at risk before it has properly begun. The areas that need your thought are:
Structure – is it just you, or others? Are those others in business with you sharing the entrepreneurial burden, or are they employees or contractors?
If it’s just you taking ownership, you can choose to be a sole trader or a limited company. Where there is more than one person, you can be partners or a limited partnership or limited company.
There is a trade-off between formality (and hence compliance burden) and the extent of liability. Sole traders and partners are personally liable (meaning your savings and home may be at risk) for the debts of their business venture. Limited liability partnerships (LLP) and companies are legal persons in their own right and the risk of failure is limited to the corporate entity. That is not to say, you will not lose out financially if your company or LLP fails. If you have invested your own money into the vehicle as a loan or initial share equity, you are unlikely to recover the sums in an insolvency. Being appointed as a director or member of a company or LLP, places duties and obligations on you which must be adhered to (sometimes in conflict with what you might personally prefer.) You will be obliged to ensure that certain formal records are kept up to date and publically filed on time.
Working with others – Being in business together is going to be tough and it is advisable to recognise this early when there is easiness in the relationship. Preparing an agreement either between partners or shareholders setting out roles and responsibilities, how you intend to proceed with the business (perhaps referring to the business plan!) and how you will deal with various “what if” scenarios, including if you fall out, is very good practice and will give you direction if the relationship ceases to be so easy. The agreement should also deal with minority interests, who may be silent in business matters but who still have rights.
Contractors should have written contracts particularly dealing with confidential information and intellectual property rights as well as deliverables and payment terms. Employees must have written contracts. Employees have statutory rights that must be adhered to and must have access to a workplace pension scheme too. It will often be more straightforward to have a payroll administrator appointed to deal with paying staff.
Insurance – If you are an employer, employer’s liability insurance is compulsory. Speak to an insurance broker about your options including broader policies such as combined commercial or small business package policies. These will provide broader protection if something goes wrong and avoid your business failing because of an unfortunate accident. If you have contracts with other businesses these may stipulate a minimum level of insurance cover, particularly for public and professional liability - covering you for negligence. Professional negligence is where you or your staff make a professional mistake that causes damage to a customer.
Health and Safety - another mandatory consideration. There are specific duties on employers and those with premises to ensure the health and safety of employees and others. The specifics of health and safety compliance are extremely complex, but the overarching theme of the legislation and attendant regulations is to take a considered approach to all activity, minimising the risk of harm to health and safety. If an accident happens, it will be up to you to show the authorities the steps you had taken to minimise the risk and that those measures were reasonable. Sometimes risk minimisation means not doing the activity, at all!
Bank account – you will need a bank account for managing the cash position of your venture. It is not advisable to use your personal bank account, even if you are a sole trader, as it will become very difficult to keep track of your business’ finances. Sole traders should consider paying themselves a regular sum into their personal bank account (like a wage) so you can keep track of surplus.
Permits and licences - these are business type dependant and your local authority can provide guidance on which licences are needed for different types of businesses.
Registering with the authorities – you will need to inform HMRC what you are doing, either as part of setting up a new company or LLP or as a personal taxpayer shifting from PAYE to self-employed. You will need to keep detailed financial records. Using an electronic system may be advisable – there are some that work quite simply using a smartphone. You may already have registered with the local authority for a permit or licence, but you my need to alert other departments too, such as for payment of business rates.
Who are your customers - are they businesses or consumers? You’ll be entering into a contract with your customers and it is better to have this documented. Standard terms and conditions avoid things getting forgotten and can avoid time consuming and costly disputes. Consumer contracts are regulated and consumers have rights that businesses must adhere to including rights to cancel in certain situations. There is more freedom when contracting with businesses, but exclusions and limitations must be reasonable in the circumstances of the relationship between the two businesses.
Creating an identity and protecting it – all businesses need a name. For sole traders this can be your own name but often businesses will want something that reflects the nature of what they are doing. Companies House will ensure your limited company or LLP name is compliant with naming regulations, but sole traders and partnerships need to ensure they are not using prohibited words. Another pitfall for all businesses to avoid is infringing someone else’s rights in a name, either inadvertently or on purpose. Pretending to be associated with another enterprise may be infringing a registered trademark, or passing off if you are trying to leverage their success or recognition. You can check for registered trademarks on the intellectual property office website.
Before investing sums in promoting and establishing your name, you should consider registering it as a trademark. Doing so will give you monopoly rights to use the name (or slogan, or graphic, or sound, or animation or shape) for your business area.
And don’t forget to check you can register a suitable domain name before becoming wedded to a business name!
Third things – launching yourself.
Whether you choose to do this with a big splash or slowly and steadily, this is where you will quickly learn what is working and what is not, what you’ve done well and what you have completely forgotten about.
Fourth, fifth, sixth and forever things – keep managing risks
- Go back to your story/business plan from time to time and consider whether it still holds up. If it doesn’t, what has changed and how will you change the business plan to work with the new state?
- If the new state is an opportunity – how will you grasp it? If the new state is a threat – how will you mitigate it?
- Keep reviewing contracts with customers, contractors and other third parties to ensure that they deal with the opportunities and threats you have identified and appropriately share out the risks and rewards.