Starting a new business is very exciting but the legal aspects can be overwhelming. Below are some helpful tips from Weatherer Bailey Bragg Accountants to help you when planning a new business and setting up a new business.
What type of business should I set up?
The main decision you will face when starting a business is the legal status. From limited company to sole trader, how you set up your structure at the start can have legal and financial implications on your business, at Weatherer Bailey Bragg we are happy to help you find the best solution for your business requirements.
Below are some of the different types of business structures you can have and a summary of what each one means.
Sole Trader
A Sole Trader is a person in business on his or her own account. If you choose to be a sole trader you will be self-employed and this means you are personally liable for any debts within your business but the profits are yours to do with as you wish.
Some of the essential requirements of being a sole trader are:
- You need to register as self-employed with HM Revenue and Customs (HMRC) within the first 3 months of trading. There is a penalty of £100 if you fail to register in this time.
- You must complete a self-assessment tax return each year and pay the relevant income tax, your tax return will contain your income and expenditure, for which you should always keep records.
- If you anticipate your turnover to be more than £77,000 a year you will need to be VAT registered. This means you have to charge VAT on your goods or services, and will have to complete and submit a VAT return each year. Depending on the nature of your business and goods you have to purchase to run your business and your customers or clients may prefer you to be VAT registered even if your turnover is below the minimum. We can help advise you on whether it would be beneficial for you to be vat registered.
- You will need to pay national insurance contributions (NICs). You can usually pay these in instalments by Direct Debit. The HM Revenue & Customs website has more information on this, click here to find out more www.hmrc.gov.uk or contact us for face to face advice on 0121 355 1901.
Partnership
A partnership is where two or more people go into business together. Each partner is equally responsible for the debts and costs of the business, and receive an equal share of the profits. The essential requirements for a partnership are the same as for a sole trader, but this applies to each member of the partnership. If you are thinking of entering into a business partnership, we can advise on the best way to do this and what needs to be considered because you may all share the same goals for your business now but this may not be so in the future and you’ll need to consider what’s best for the continuation of your business.
Limited Liability Partnership (LLP)
A limited liability partnership is similar to an ordinary business partnership but has the benefits of limited liability for the business owners, this provides some protection if the business gets into difficulties. The essential requirements for a Limited Liability Partnership are:
- You may have any number of members in your partnership with a minimum of two ‘designated’ members who carry extra responsibility for the business.
- You must register with Companies House and file annual accounts.
- An annual AR01 form must be checked and returned to Companies House with a fee.
- Each partner will have to complete a self-assessment tax return each year detailing income and expenditure, for which they will need to keep records, and pay the relevant income tax based on their share of profits.
Limited Liability Company (LLC)
A limited company is a legal entity in its own right, and its finances are separate from those of its owners. It continues to exist even if the owners die or resign, unless it is wound up or struck off the Companies House register. The owners have restricted liability to the value of the shares that they own or any loan or other financial guarantee.
The main types of limited liability Company are:
- Private limited companies: these can have one or more members, (shareholders). They cannot offer shares to the public.
- Public limited companies (PLCs): must have at least two shareholders and must have issued shares to the public to a value of at least £50,000 before it can trade.
Because of the reduced liability to owners, limited companies are governed by tighter rules and regulations than partnerships or sole traders. Some of the essential requirements of starting an LLC are:
- You must register with Companies House and file annual accounts.
- A private company can now have just a sole director provided, from 1st October 2008, that the director is a natural person. It is no longer compulsory to employ a company secretary.
- You must file an annual tax return with HMRC and pay corporation tax at a minimum of 20%. In addition, employees and directors will have to pay income tax and as Class 1 National Insurance Contributions (NICs).
- An annual AR01 form must be checked and returned to Companies House with a fee. Any changes to structure or management should be communicated to Companies House by a director or the company secretary.
Choosing a business name
Your business name is a reflection of the personality behind the business, what your unique selling point is, quality goods or services you will provide, and can say a lot about your company or service. However, choosing the right name now will save you time, money and the way your customers perceive you.
- You will need to check your chosen name with the National Business Register, the Patent Office, Companies House and Trade Marks Register to make sure it’s unique within your chosen business sector. If you infringe on another business’s name, they could take legal action against you to protect themselves and the reputation they have built for this name.
- Check other meanings of the name you intend to use, particularly if you will be trading overseas. Some unusual company names can have a negative implication in a different language.
For more information or to check a business name you have in mind, visit www.companieshouse.gov.uk.
Your responsibility to your staff
If you are planning to take on employees from the start, you will need to set up a Pay As You Earn (PAYE) system to ensure they are paying tax and national insurance. We can help set this up for you. You will also need adequate insurance and processes and procedures to guarantee their health and safety in the workplace. Talk to us about the requirements you need to start employing staff on 0121 355 1901.
How do I buy a franchise?
A popular way of getting into business is to buy a franchise. A franchise will give you all the benefits of an existing brand and infrastructure, training and support but you will keep most of the profits and run the business as your own.
A franchise is a legal arrangement where the franchisor allows the franchisee (the buyer of the franchise) to open a business using its name and branding in return for payment.
The advantages
- You are buying into an existing brand and market, so will cut out much of the initial market research and time taken to build a brand that a new company usually requires.
- The franchisor has vast experience of the market and the products or services, so you can avoid costly experiments or potential mistakes by taking advantage of the franchisor’s knowledge base. This can be particularly important when looking for a potential branch location or new market to trade in.
- Franchisors will provide comprehensive start-up training and support, and most will provide an on-going training facility for the franchisee and staff to expand their skills. There can be a significant cost saving as outsourced training is usually very expensive.
- You will have access to a tried and tested business formula and systems, a roadmap to success which will show you each step you need to take to achieve your business goals. This will be based on the franchise history and experience, so it’s worthwhile looking for an established name, although there can be advantages to a new brand in a tired marketplace.
- You will have the support of other franchise owners, as you will have exclusive territory rights and will not therefore be in competition with each other. This means you can share experiences and tips in confidence, and is also useful when researching which franchise to purchase. Existing franchisees will be able to tell you how good the franchiser is at the things you find important, so make a list of questions and approach them for references before you commit to buying a franchise.
- Your franchisor will undertake market research and intelligence to keep you informed of the latest developments in the marketplace. This will help you to grow your business and stay one step ahead. This is particularly important in a competitive industry.
- An established franchise is a safer business proposition than a brand-new business, so you may find it easier to raise the required finance from your bank or other lending institution to buy it.
The disadvantages
- You will have little flexibility for things like brand or products, as those are chosen by the franchisor based on their business formula. You might find this inflexibility frustrating, so if you are the independent type and like to do things your own way, a franchise might not be for you.
- Strategic business decisions are out of your control, which could lead to financial risks. If the franchisor decides to take the business model in a different direction to the market, or take a risk on a new product or service, you could end up losing out.
- Franchises can be expensive. You will have to pay a fixed fee for the franchise plus a regular fee or percentage of profits. You may even be forced to purchase your stock from a specific supplier at a greater cost than elsewhere. You will also need to pay your everyday costs like wages. We recommend you consult an accountant and find out exactly what your business expenses will be before committing.
- There is always the possibility that a franchisor won’t live up to their promises. This is the risk every business owner takes with suppliers, but you can minimise your risk. Ensure you do your homework and research every aspect of your potential franchise thoroughly, including talking to existing franchise owners.
Owning a franchise can be a rewarding, profitable way of getting into business for your self. If you want to be your own boss without the headache and time factor of establishing a new face in the market, then a franchise could be the ideal solution. If you are thinking of buying a franchise, talk to us and let us make sure you are making the best decision for your lifestyle and business goals on 0121 355 1901.
How do I test my business idea?
All great businesses start with a great idea. But how do you know if yours will succeed? Before you’ve even started writing your business plan, you should undertake a simple exercise to ascertain if your idea is a solid one. We recommend doing a SWOT analysis, it will help you think objectively about your new business idea and provide an outline of what you want to do, any obstacles in your way and whether it will succeed.
Not sure of how to do this, let us help by calling us on 0121 355 1901.
SWOT Analysis
The SWOT analysis is an extremely useful tool for understanding all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats. The SWOT analysis headings provide a good framework for reviewing strategy, position and direction of a company or business proposition, or any other idea.
Draw a large square divided into quarters and label the top-left square Strengths. Write in all the strengths of your idea. You can also include your own personal strengths and those of your business partners. Be as honest as possible. Some things to consider include:
Advantages of proposition? Capabilities? Competitive advantages? USPs (unique selling points)? Resources, assets, people? Experience, knowledge, data? Financial reserves, likely returns? Marketing – reach, distribution, awareness? Innovative aspects? Location and geographical? Price, value, quality? Accreditations, qualifications, certifications? Processes, systems, IT, communications? Culture, attitudes, behaviours? Philosophy and values?
Any that don’t apply, or are not a strength, should be moved to the Weaknesses section in the top-right hand box, plus any other weaknesses you identify. Examples of criteria you could include are:
Disadvantages of proposition? Gaps in capabilities? Lack of competitive strength? Reputation, presence and reach? Financials? Own known vulnerabilities? Timescales, deadlines and pressures? cash flow, start-up cash-drain? Continuity, supply chain robustness? Effects on core activities, distraction? Reliability of data, plan predictability? Morale, commitment, leadership? Accreditations, etc? Processes and systems, etc?
Move on to opportunities in the bottom-left hand corner. Opportunities are environmental issues that surround and affect your company, product and position. These can include:
Market developments? Competitors’ vulnerabilities? Industry or lifestyle trends? Technology development and innovation? Global influences? New markets, vertical, horizontal? Niche target markets? Geographical, export, import? New USPs? Tactics: eg, surprise, major contracts? Business and product development? Information and research? Partnerships, agencies, distribution? Volumes, production, economies? Seasonal, weather, fashion influences?
In the last square, list the things that may threaten your business. These can include:
Political effects? Legislative effects? Environmental effects? IT developments? Competitor intentions – various? Market demand? New technologies, services, ideas? Vital contracts and partners? Sustaining internal capabilities? Obstacles faced? Insurmountable weaknesses? Loss of key staff? Sustainable financial backing? Economy – home, abroad? Seasonality, weather effects?
Analyse your results
Take a good long look at what the results tell you. Is it possible that your business idea is not so viable after all? Examine the facts and make an objective decision. A failed business can be heart-breaking and financially devastating, so be completely honest before you dive in. If the SWOT analysis shows a strong proposition, go for it!
Want an honest opinion of whether your business idea is a good one? Call us now on 0121 355 1901.
What does it take to run a successful business?
If you are thinking of starting your own business, you will need to take a good long look at your skills to ensure you have what it takes. Working for yourself can be very rewarding but the demands are much higher than being in employment and not everyone is cut out for the life of an entrepreneur.
If you are prepared to take risks, work long and sometimes lonely hours, be ruthless but take criticism, learn from your mistakes and motivate yourself and others when things are tough, then owning your own business might be the right step for you.
Start by assessing your own skills to determine what you can and can’t do. Some things to think about are:
- What can you do for yourself?
- What can you do for minimal or no cost?
- What do you need to outsource?
This will give you a good idea of the bigger picture and help you predict where your money should go and any potential skills gaps you need to fill.
There are many aspects of running a business, but we recommend you at least consider the following:
Sales and marketing
You will need to research your market, build a brand, secure new customers and retain them. Investing in professional marketing services is one way to go about this, or you can learn the basics yourself and just dive in. Get some advice from an expert as the message you think you are putting across can be misinterpreted and may not attract the right customers for your business.
Alongside your business plan you should create a marketing plan to plot how you will grow, attract new customers and promote your business. Again getting advice from an expert in this field will help you immensely and save you time and money in the long run.
Finance
You will need the services of a good accountant, but there are many aspects of finance that you will inevitably end up doing yourself, particularly when your business is new. This includes budgeting and forecasting, basic book-keeping including wages and VAT, managing debt, credit, and stock control. You may require training or additional help for these, or you can learn the basics online or through specialist books. There are many inexpensive software packages that can help manage your finances. Ask us at Weatherer Bailey Bragg about the best packages for you on 0121 355 1901.
Human resources
If you have staff, you will have to comply with health and safety legislation as well as managing payroll, personnel issues such as sickness and holidays, and many other requirements that go hand-in-hand with people management. Most important of all, make sure you and your staff are complying with the relevant legislation, have proper contracts in place and are adequately insured and safe at work. Keeping your staff happy and motivated are the foundation for the success of your business talk to us about the best ways to maintain a strong workforce by calling us at Weatherer Bailey Bragg on 0121 355 1901.
Information technology
If you are planning to use computer equipment, set up a network or have a website built, you will need adequate IT skills. Outsourcing IT support can be expensive, so it’s worthwhile learning the basics so you can keep your facilities ticking over in the event of a problem. Your website may become your main source of new business so it’s important to ensure your investment is worthwhile, is found in search engines and provides a 24hr shop-front that reflects your personality, quality of services and products speak to us at Weatherer Bailey Bragg about the best way to get started on 0121 355 1901.
How do I write a business plan?
Banks and other sources of funding will need to see a business plan before they lend you any money to start a business, but a good business plan at this stage will also help you create, think about your goals and grow your business.
Your business plan is your goal for your business, your mission statement and your vision for your future. It defines where you are going in the next few years and how you are going to get there. If you set your plans out on paper you are more likely to achieve them, it’s very easy to get side-tracked in the day-to-day running of your operation. A business plan will help you check your progress against your objectives to ensure you are moving forward as you intended at the start or can help diversify and change with your market sector.
Regularly check your resources (staff, equipment, premises, skills) against your business plan to identify any shortfall that may prevent you achieving the goals you have set. If you can see your priorities and objectives, you can make business decisions based on the bigger picture. Time passes extremely quickly when running a business so it’s important to monitor and keep track of things like: increasing costs, changing trends, stock levels, new technologies to help your business etc speak to us at Weatherer Bailey Bargg about the best way to maintain these on 0121 355 1901.
Added benefits of a business plan
By writing about your business as if you were describing it to a stranger you are forced to ask questions you might otherwise easily avoid, or you may not have thought to ask yourself in the first place. It will also help any potential buyers if you decide to sell your business at a later date.
A business plan instantly lends credibility to any business and can be the key difference between focused success and distractions leading to failure.
Show us your business ideas no matter how vague they are at this stage, we’re always happy to advise and point you in the right direction to ensure your business gets the best start and is sustainable in the future, speak to a business expert at Weatherer Bailey Bragg on 0121 355 1901.
Making changes
Your business objectives and priorities may change, or your marketplace could take an unexpected turn. In that event, you will need to revisit your business plan to adjust for the new circumstances. Speak to us when you notice any changes, we will help keep you on track and provide friendly, helpful advice when needed so your business can continue to thrive, change can cause unnecessary stress on you as the business owner but can be beneficial too.
As your business grows and you acquire more resources such as employees, ensure you incorporate them into your business plan so everyone can see their shared objectives, company vision and common goals.
However, you should be wary of any new project or contract that takes you too far away from your original business plan. While there is room for some flexibility, you should not see a business plan as something to be changed lightly. You need to assess the new opportunity in the light of the business plan and your future goals to decide whether or not it will really help you achieve your long-term business objectives and lifestyle.
For information of viewers: This material is created for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
Talk to us at Weatherer Bailey Bragg, we care about building your business and want to make sure you start off on the right footing, so you can concentrate on day to day business with piece of mind that you have all the right legal steps covered first, for friendly advice without all the legal spiel call us now on 0121 355 1901.