The Coronavirus lockdown has led to an unexpected leap in the number of new firms in Britain.
This has emerged in a study commissioned by Royal Mail. From March to July this year, 315,000 companies were incorporated in the UK - a 7% increase compared to the same period in 2019.
And, in the second quarter of this year alone, 176,000 start-ups were recorded - the highest for any April to June on record.
Royal Mail said the data suggests that the unique circumstances prompted by the pandemic and the associated lockdown have prompted a spike in entrepreneurial activity.
The highest rates of new business creation have been in e-commerce, followed by the services sector. Nearly 16,000 e-commerce businesses were created between March and July.
So what are the most important things entrepreneurs need to consider when setting up a business? Our Corporate and Business Advisory Partner Ritchie Whyte lists his top tips below.
1) Choose the correct company structure
In reality, you will have four options: become a sole trader, form a partnership, or incorporate a limited liability company or partnership (LLP).
The main difference between them is the level of personal liability you are exposed to. If you are not going to employ anybody, you will probably best fit the sole trader category, as there is little red tape to deal with. However, be aware that the law makes no distinction between the business and its owner, which means any business debt is met from the owner’s personal wealth if the business fails.
The most common extension of the sole trader model is a partnership – which is essentially a grouping of self-employed people. It is important to have an agreement amongst the partners as to how the liabilities, ownership and profits of the business are split and how the business is managed.
Traditionally, the limited company vehicle has been tax efficient for higher turnover businesses and makes it easier to grow and secure investment, whilst controlling your exposure to financial risk. However, that credibility and protection comes with an additional administrative burden.
The limited liability partnership (LLP) model offers a hybrid between partnership and limited company. It gives the financial protection available to limited company shareholders, alongside the tax regime and flexibility available to partnerships. These are particularly well suited to companies offering professional services.
2) Terms and conditions for suppliers and customers
This is definitely not a ‘sexy’ part of setting-up a business, but it certainly is one of the most important. Poorly drafted contracts - or no contracts at all - are the biggest source of disputes between businesses and suppliers.
If you don't specify terms and conditions, you put yourself at risk of uncertainty and misunderstandings. Therefore, it is vital to establish the actual arrangement between the two parties involved in any deal.
Not getting this right could impact your cashflow through delayed payments and having to pay for materials before taking payments.
3) Branding / marketing
Branding and marketing are crucial for any business, but especially for new businesses. Market research can enable you to spot a gap in the market and being the best supplier within a niche should be high up on your list of ambitions.
Effective marketing is underpinned by sound knowledge of the market. Only by knowing exactly what your customers want can you hope to satisfy them and possibly even lure them away from your competitors.
Marketing success is underpinned by the Four Ps – product, price, place (distribution) and promotion. Get the right combination and you'll maximise your success. In terms of promotion, you’ll need to think about a website, social media presence, e-mail marketing and PR to generate news about your business and the services you offer. Look upon these as investments rather than costs.
4) Employment contracts for employees
Employees will often be your most valuable assets, but they can also one of the biggest areas of risk for new businesses. Contracts should list all the terms and conditions that you need to run your business which will include the hours of work, place of work, pay, overtime, holidays, notice periods, sick pay, pension arrangements and so on.
5) Financial advice
At least one of the people running the business needs to be financially astute when it comes to looking at financial projections and cash flows. No business can survive without money! This will ultimately involve enlisting the support of an accountant who can help support you with the financial management and planning for the business.
Help for small businesses
Aberdein Considine offers comprehensive legal support to small businesses across Scotland. Ritchie and his team are recommended by the independent Legal 500 guide.
To speak to either of them, call 03330164398 or click here.