The Eight Most Common Mistakes When Setting Up A Business
Here you can download our The Eight Most Common Mistakes When Setting Up A Business booklet. An example of the useful information you can find in the booklet is featured below.
Starting a new business is an exciting, busy and challenging time. But amid everything else you have to do, it is all too easy to overlook some essential details which, if put in place at the early stages, will strengthen your business and can save time and money in the future, as easily preventable problems are avoided.
FWJ can help you avoid some common pitfalls and give your new business the best possible start.
Contact us if you need help answering any of the following:
1. Am I Choosing The Wrong Trading Entity?
After deciding the nature of your business, perhaps the most fundamental decision (and one that it is easy to overlook in the rush to start trading) is type of entity you wish to use. You can run a business:
- As a sole trader: there is no formality to your business structure; you just set up and carry out your business independently.
- In partnership with one or more other people: a partnership will arise where two or more people are in business together with a view to making a profit. This can be an informal (or even unintended) relationship or properly documented by a partnership agreement or by using the limited liability partnership structure.
- Through a limited company: this is the most formal business structure, but it is quick and easy to set up a company through which you run your business.
FWJ can offer advice on which is the right business structure for your particular needs, one that takes into account your personal situation, e.g.: income and tax, assets and risk, management and control.
2. Am I Taking On Too Much Personal Risk?
In today’s economic climate the issue of risk can never be far from the business owner’s mind. Having decided to take the plunge, do not forget the potential impact of running your own business on you personally. The level of personal risk, including the risk to your personal or your family’s assets that you assume when running your own business can be directly affected by the business structure you have adopted.
The best way to separate your (and your family’s) assets from the obligations of the business will be to run your business through a limited liability company, which has its own legal personality and owns the assets of the company itself. As a shareholder of a company your liability (as the name implies) is limited to the value of your shareholding. However as a director, you will have numerous duties to comply with [see our booklet “Directors Duties and Liabilities”], some of which, if breached, could have serious consequences for you. You may need to evaluate the relative merits and drawbacks of being a company shareholder and/ or director.
As a partner or a sole trader the assets of the business are owned by you as an individual and you are fully liable for the debts of the business. For this reason, these can be more risky business structures, but they may give you more flexibility and independence in running the business.
It is all too easy in the rush to get the business off the ground to overlook the question of who owns the assets and is responsible for the liabilities of the business. Don’t leave yourself exposed to unacceptable risks and make sure you understand your potential obligations.
FWJ can help with advice on how to minimise your exposure to risk.
3. Do I Understand What I Have Agreed With My Business Colleagues?
Unless you are running your business alone and funding it from your own resources, it is likely that you are setting up the business with friends, relations or a professional investor who specialises in providing capital for new or developing businesses. Whilst everyone is focusing on the start up and you are all caught up with the excitement of the new enterprise, it can seem obstructive or even over-pessimistic to insist on formal documentation to govern your relationship, such as a partnership or shareholders agreement. This common mistake can be one much regretted later on, if there is no record of financial contributions to be made, distribution of rewards, allocation of decision making powers or provisions for separating interests when circumstances change.
We would always recommend an agreement is drawn up between everyone involved in the business to regulate the management of the business
A professional investor will not overlook the need for an investment agreement, but do make sure you understand the terms and do not, in the rush to receive the crucial capital, sign anything you are not happy with. Points to look out for include: investor rights to appoint directors who may have the key influence over the business or terms which require repayment of the investment or sale of the business at the investor’s demand.
We can assist you in this very important area.
4. Have I Chosen The Right Type Of Funding?
Funding for businesses can take a variety of different forms from a range of finance providers. To the inexperienced this can be baffling and, if the wrong selection is made, expensive. Do you need:-
- A capital investment to get started?
- A bank loan to buy a key asset?
- A bank overdraft to smooth you through the trading cycle?
- Cash-flow finance?
FWJ’s extensive network of brokers and long standing relationships with specialist financiers can help you find the right type of funding for your business. Once you have decided, we can guide you through the finance and any related security documents and ensure you sign the best deal for your business.
IN ORDER TO FIND OUT MORE ABOUT THIS SUBJECT AND THE ANSWERS TO THE QUESTIONS LISTED BELOW, DOWNLOAD OUR HANDY TIPS BOOKLET HERE.
ALTERNATIVELY, CONTACT THE TEAM ON 020 7841 0390
5. Do I Have Proper Credit Control Procedures In Place?
6. Am I Up To Date With My Record Keeping?
7. Are There Any Terms Of Business?
8. Have I Sorted Out Our Premises And Employees?
Should you require any further assistance at all with these matters, then please contact one of our corporate specialists on 020 7841 0390 and we will be happy to discuss this with you.