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With 801,000 new businesses launching in the UK between 2022-23, setting up for success is more important than ever. Especially with the competitive nature of online advertising, the cost of living crisis, and the increased scrutiny when seeking funding.
As a corporate commercial solicitor with years of experience, I’ve guided dozens of entrepreneurs through their startup journey.
While every business is unique, achieving success often depends on getting the same fundamental elements right from the start.
In this blog, I go through the considerations you should plan for when setting up a business.
If you’re ready to discuss your matter, contact our expert team by calling 0203 007 5500 or sending an email to [email protected]
1. Choosing the right business structure
This first decision when setting up a business isn’t just about putting a label on it. Choosing the right structure helps lay the foundation for your future success. This choice will influence everything from how you pay yourself to how you can grow and eventually sell your business.
Three common business types are recognised in England and Wales, including:
Sole trader (AKA self-employed)
As a sole trader, you’ll have complete control and simplicity in running your business. This structure works brilliantly for freelancers or those running small-scale operations.
However, as a sole trader, you’ll be personally responsible for business debts. This is a significant element that can create a huge amount of stress for unprepared business owners.
Partnerships
Partnerships offer a collaborative approach and are popular for professional services.
They have the same flexibility as a sole trader and require minimal business set-up admin. However, being in a partnership does make your business subject to the Partnerships Act 1890. Working with a solicitor to draw up a Partnership Agreement ensures the protection of both parties’ interests.
Limited Companies
Limited companies remain popular for good reason. They offer personal asset protection and tax advantages that can be significant as your business grows.
This business structure isn’t just for larger companies. A one-person business can still register as a limited company. This route is particularly beneficial for entrepreneurs looking for growth and future investment. The transparent nature of a limited company often makes funding and investment avenues much smoother and easier to achieve.
Depending on the structure you choose, your company will be an incorporated or unincorporated business.
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2. Risk management protocols
Modern businesses face risks that entrepreneurs even five years ago didn’t need to consider. Here’s what you need to think about:
- Personal Asset Protection (liability)
- Cyber Security Insurance
- Professional Indemnity Coverage
- Data Protection Compliance
- Intellectual Property Protection
- Although you may not consider these elements a priority, think about the influx of news
- stories covering data breaches over recent years.
One example is the 2023 data breach at a well-known health and beauty store, Boots. They experienced a cyber-attack involving the stolen personal details of their employees. In response, Boots had to liaise with past and present employees, alerting them of the breach and offering complimentary identity theft checks.
Not only do these types of breaches gain rapid media attention affecting the company’s reputation, but they can build up large costs and drain resources. You may need to undertake a huge outreach to alert those affected, compensate victims, and even shut down parts of your online operations to prevent further threats. In some circumstances, the Information Commissioner’s Office can issue a fine of 4% of your annual turnover.
The cost of problems can far exceed the cost of preparation and protection. Implementing a comprehensive risk management strategy and insurance makes for an important part of setting up a business.
3. Growth strategy and funding
One of the biggest mistakes we see is businesses choosing a structure that limits their future growth options. Your initial setup should support your current operations and your ambitious five-year plan.
For context, picture a small food business. They initially set up as a sole trader, running a single market stall. Within two years, an opportunity arose to open a permanent location, but their sole trader status made it difficult to secure funding. They went through a complete business restructure to form a limited company.
Restructuring is a process that uses valuable time and money and could have been avoided with forward planning.
When planning your business’s financial foundation, think about immediate and future needs. How will you fund your initial operations? What happens when you need to expand? Different structures offer varying levels of flexibility when raising capital, whether through loans, investments, or reinvested profits.
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4. Tax efficiency and financial planning
For business owners, it’s notoriously difficult to strike the right balance between paying yourself and investing in the business.
Although the numbers side of things can feel complex, the right approach can help you build personal wealth while growing your business.
Some elements to consider during financial planning are:
- Business tax optimisation
- Personal tax planning
- Pension strategy
- Exit planning
- Profit extraction
- Dividend structures
A limited company offers more flexibility in how you take money out, allowing you to balance everything in the most tax-efficient way. However, this comes with more complex accounting requirements.
Working with a tax specialist, financial advisor, or accountant can help you set up your finances for success.
5. Holistic compliance
Keeping up with regulations and compliances can often feel like an uphill battle. Especially when you’re just starting out.
When setting up a business, you need to take a step back and think about all the elements that can affect how you operate. It’s not enough to just register your business and start trading.
Some factors to consider:
Renting a commercial space – your leaseholder agreement will govern what you can do there.
Licenses – Do you have a license to sell your product or conduct your business e.g. an alcohol license, or a street license to have outdoor seating?
Employees – Has your business grown or are you expecting to grow and need employees? Now you need to consider employment laws.
Industry regulations – each industry is governed by its own body and has its own set of rules. For example, farming must follow guidance from DEFRA (the challenges of which are seen on Amazon Prime’s series Jeremy Clarkson’s Farm).
Marketing – Do you have a website? You’ll need to comply with GDPR and data protection rules. Will you partake in online marketing, such as social media? You’ll need to follow ASA rules.
Using these as guidance from the beginning can avoid problems, fines, and reputational damage.
It’s understandable to feel paralysed by the amount of considerations. You may even find that some of the regulations clash. This is where working with a corporate commercial solicitor can help. They can clarify exactly what your business needs to follow, and how to avoid non-compliance.
Making a strategic decision
Rather than rushing to register your business, take a strategic approach. Start by honestly assessing your current position and future ambitions. Think about your risk tolerance, growth plans, and industry requirements. Then, consider how different structures align with these factors.
The time and money invested in getting your business structure right at the start is minimal compared to the cost of changing it later. Businesses that plan their structure carefully tend to grow more smoothly and encounter fewer obstacles along the way.
Get Expert Guidance
Every business is unique, and while this guide provides a foundation, your specific situation may benefit from tailored advice. Our team of specialist corporate commercial solicitors can help you through the process of setting up a business.
How can Britton and Time Solicitors help?
Setting up a business can be a stressful process, especially if you’re unfamiliar with all the legal documentation that comes with it. That’s why it’s best to consult an expert when doing so.
To arrange a consultation with one of our solicitors, simply call us on 0203 007 5500 or send an enquiry to [email protected]
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