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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 and regulatory compliance
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.
Depending on your industry, you have additional regulations to meet. 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 Clarkson’s Farm).
Your business may also be subject to licenses to sell certain products or services, for example, an alcohol license or a street license.
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. Solid contracts
Well-crafted contracts can be the difference between a thriving business partnership and a costly legal nightmare. Contracts are far more than just legal documents – they’re the blueprint for your business relationships, setting clear expectations and protecting your interests.
Vague or templated contracts can create grey areas, and if legal action is needed, they could leave you vulnerable. Whereas bespoke and precise contracts prevent room for interpretation and solidify your rights and responsibilities.
Your contracts should be more than just a formality. They’re your first line of defence and a clear communication tool between you and your clients, suppliers, and partners.
A solicitor will ensure that your contracts are fair and robust, negotiating terms such as payment schedules, scope of work, performance benchmarks, exit strategies, quality assurances, and confidentiality clauses, to name just a few.
The cost of a professionally drafted contract is minimal compared to the potential expense of a legal dispute. We’ve seen businesses save tens of thousands of pounds by investing in their contracts from the start.
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4. Business support networks
Starting a business can feel like navigating uncharted waters, but you’re not alone. The UK offers a wealth of support for entrepreneurs. Knowing how to leverage these resources can give you a significant competitive advantage.
Government support – Government support is more comprehensive than most new business owners realise. These programs can offer specialised industry grants, low-interest loans, and tax incentives.
Networking – As a new business owner, it’s essential to take advantage of business networks and Chambers of Commerce. They often hold workshops, talks or training, and give you access to industry peers and mentors. Your connections can end up proving to be one of the most valuable assets you have.
The most successful businesses we’ve worked with didn’t just wait for opportunities – they actively sought them out. These resources can provide guidance, funding, and connections that can accelerate your business growth in ways you might not expect.
5. Growth strategy and funding
One of the biggest mistakes we see is businesses failing to look to the future when decision-making. Your initial setup should support your current operations and your ambitious five-year plan.
For example, 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.
Typically, as businesses grow, you’ll need to hire employees, rent an office or manufacturing space, and ramp up your marketing efforts. If you go down the avenue of venture capital, you may have to act fast on all these elements. So, it’s a good idea to factor these into your initial plans.
The number of considerations and decisions can feel paralysing. Especially when trying to strike the right financial balances. This is where working with a corporate commercial solicitor can help.
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 corporate and commercial solicitors, simply call us on 0203 007 5500 or send an enquiry to [email protected]
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