Are you considering setting up a new business?
Leaving a job to start a new business is a dream for many people. However, only a few take the steps and do what it takes to start a business from scratch. We all know that there are many challenges involved in setting up a business, however, with the right preparation, those will pay off.
The challenges you come across will be different for different types of businesses, but there are a few fundamentals that all new business starters will need to consider.
This article offers a brief, yet complete guide to setting up a business. And if you have any questions, don’t hesitate to get in touch.
Topics to be answered in this article
The reason
Why have you decided to start a business?
There are a number of reasons to start a new business. That reason could be that:
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You’ve found a gap in the market that you’re looking to fill
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You were previously in an employed role and now you’re looking for greater flexibility and to be your own boss
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You’re looking to purchase an existing business and make it your own
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You want to pursue your passions and turn that into your career
There is no right or wrong reason to start a business, however, you should consider that starting a business is a significant commitment, in terms of time, money, and effort.
The idea
What type of business do you want to have?
The type of business, or business structure, that you set up will depend on the industry that you’re breaking into.
One of the most common business structures is a Limited Liability Company. The main benefit of setting up a Limited Company is that the owner of the Company has limited liability. This is different to businesses operating as a sole trader – with sole trader businesses, the individual owner has unlimited liability.
Let’s take an example to demonstrate this:
The business has a debt of £10,000.
With a Sole Trader, the £10,000 sits with the individual and means that the individual’s personal assets (including cars and houses) would be at risk if pursued by the person who is owed money.
With a Limited Liability Company, the £10,000 debt sits with the Company and not the individual. This therefore means that the individual’s assets are nearly always protected.
As illustrated above, having a Limited Company as the business structure provides financial protection for the individual. So, what are the downsides to a Limited Company? The cost of operating as a Limited Company will be slightly higher – there is the initial incorporation fee for setting up the Company and Companies House has various filings requirements.
There are other structures for setting up a business, such as Ordinary Partnerships and Limited Liability Partnership which may be worth considering if there is more than one person setting up the business.
Finances
Unfortunately, there is no ‘one cost fits all’ scenario. The cost of setting up a business or starting a new business venture by purchasing an existing business will depend on a number of factors, a few examples of the factors are set out below:
Industry
The industry the business is in – i.e. hospitality, manufacturing, education, food, etc.
Premises
Whether the business will require premises – will a new lease need to be drawn up with a Landlord? Will the business purchase property, or can the business operate without a property (i.e. at home)?
Number of employees
How many employees will the business be employing? We would recommend having written employment contracts in place to reduce risk.
Terms & Conditions
Will terms and conditions need to be put in place with suppliers or customers?
Marketing
How will the business promote itself? Will a website and marketing be required?
Incorporation Fees
If a Limited Company is required, there is the incorporation fee for the set up. It is also worth considering having a Shareholders Agreement in place. This is a contractual document between the shareholders of the Company which really governs the relationship and also, covers a variety of scenarios such as what happens in the event of a shareholder’s death or how certain decisions are to be made.
Business Model/Plan
A business plan is a formal document containing the goals of a business, how you plan on attaining those goals, and a set time-frame for the achievement of those goals.
The very process of putting together a business model/plan, forces business owners to consider matters which they would not ordinarily think of. This can really help reduce within the business as the business has a clear direction, idea of costs and the opportunity to assess the liability before any issues arise.
Research and testing
Once again, this depends on the type of business that you’re setting up! You may wish to consider trial periods to check the sustainability of the business. You will also want to have a good understanding of the industry and how saturated the market is, so that you know whether your business will have the capacity to grow within the sector.
Moreover, market research and mystery shopping both have their benefits and can help massively when setting up your own business.
Of course, the more research and testing that is done before the business starts, the better. However, regardless of the amount of research and testing done beforehand, there is always an element of learning as the business develops, which cannot be researched beforehand.
Branding, marketing and growth
Put simply, branding is who you are as a business, and marketing is how you build awareness of that brand.
Branding includes your business name, term, design, symbol, logo or any other feature that distinguishes your business from others. By contrast, marketing is the activity of promoting and selling products or services, including market research and advertising. Depending on the business, you may have a team dedicated specifically to branding and marketing, or this can be performed by an external agency.
There are many reasons why marketing is important to a business, including the following:
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Provides information – both externally and internally. Marketing encompasses how your business is perceived by your customers or clients, as well as employees and other internal stakeholders.
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Drives engagement – which in turn encourages customer retention and repeat purchasing. This is how you build and establish relationships with your target market.
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Builds brand awareness – which grows and shapes your business’ reputation. Effective brand awareness marketing can help you build trust among prospective and existing customers/clients and shape their perception of your business.
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Promotes sales – unless people know who you are through your marketing, it’s very difficult to make sales!
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Boosts business growth – and sustains it. The success of your business depends on attracting and retaining a strong customer/client base.
Registration and rules
Without defined business rules and procedures, you can often find a chaotic workplace with inconsistent outcomes, poor morale, and dissatisfied customers/clients.
All limited companies are governed by the Companies Act 2006 and the Model Articles unless they have adopted their own bespoke articles. The Articles and the Companies Act are the rulebook of the Company and should always be complied with.
You will also have to follow a number of rules pertaining to employment law, which can be a potential minefield and an area of law subject to constant change. Difficult situations are sometimes unavoidable which is why getting the right advice from the start is paramount.
Keeping the future in mind…
When starting a business, it’s crucial to bear the future in mind. What are your ambitions and intentions for 1, 5, and 10 years down the line? What are your expectations in respect to growth and development in those time frames?
If you’re starting a business and looking for legal advice, our Corporate & Employment departments are here to help. Our team has a proactive, can-do, approach to business matters. Our aim is to support you in starting and running your business by providing you with tailored, comprehensive and practical advice. We are not here to tell you what to do, but to help you to make things happen, how and when you want.
To get in touch, complete the form below or email info@goughs.co.uk.
