Choice Of Business

You may have an excellent idea for a new business, but is there a market for it? Do not be afraid to take advice from reliable friends and professional advisors, surch as your Accountant and Bank Mangager. Valuble guidance can be obtained from other sources such as the Local Authority.

Are you leaving employment to set up in competition with your former employer? Remember to assess the affects of direct competition with a larger employer.

Will you be using confidential information obtained during your previous employment? This could have legal implications.

Does your Contract of Employment restrain you from competion?

Business Structure

Basically there are two forms of business structure - the Unincorporated Business and the Limited Liability Company.

The Unincorporated Business will consist of a sole trader or partnership. The advantages of such a business are:

• Comparative informality.
• No statutory meetings.
• No staturory audit.
• No requirement to publicise accounts.
• Cheaper than companies to run and manage.
• Cheaper than companies to dissolve.

Unincorportated businesses suffer from certain disadvantages. Notable, the Proprietor, wheter he is a sole trader or a partner, is fully liable for his firm's debts and for acts commited on behalf of the business by his co-partners, even without his knowledge. Unincorporated businesses sometimes find it more difficult to raise finance.

Limited Liability Companies often have one main advantage. The higher risk of buisness failure, the more desirable it is to incorporate with limited liability for the shareholders.

To some extent, the benifit of limited liability is cancelled out by personal guarentees which have to be given to get Bank Loans; nonetheless, limited liability does provide some protection from Third Party creditors.

• A business with rapid growth and profit prospects usually favours the Company structure
• The Company medium is partuculary favourable for Retirement Pension Schemes.
• The administration requirements are more expensive than unicorporated businesses.
• The statutory requirements for auditing and publication of accounts are stringent.
• Equity capital in a private company is locked away and is not easy to withdraw.
• There is a risk of Double Taxation Charge if the company is wound up.

If you are a shareholder, the value of your share in the business may be much more precarious than if you are a partner. Shareholders frequently rely upon the Articles of Association of the Company (i.e. its constitution) without reading the small print. Consider the need for a Shareholders agreement.

V.A.T

The important question is whether and when to register for V.A.T. The rules are complex and not always easy to follow. Dont be afraid to contact your Accountant and/or the local V.A.T Office for guidance. Basically , there are two tests:

• The Looking Back Test:  Registration becomes compulsory currently where your Taxable supplies exceed the current statutory limit for any quarter period ending March, June, September or December, or the whole year. Remember to monitor the situation carefully and notify Customs and Excise immediatly registration becomes necessary.
• The Looking Forward Test:  This test stipulates that where there are reasonable grounds for believing that Taxable supplies will exceed the statutory limit in the forthcoming twelve months, the V.A.T Office must be notified before the beginning of the period in question. The penalties for failure to register, or for failing to effect proper V.A.T Returns can be severe. Seek your Accountants advice as to the mechanics of the system.

Raising Finance

Initial Steps-It is a good idea to prepare the following:-
Budget covering such matters as:-
Sales Forcasts
Proposed Prices
Trade Credit Periods
Salaries
Interest Payments
Other Expenses
Work out your financial requirements:-
Short Term to provide Working Capital
Medium Term to provide Plant and Machinery, Improvements to Premises etc.
Long Term, e.g to acquire Freehold Premises
Bank Presentation:-
If you have done your homework carefully, the chances of obtaining finance are that much better
Bank Managers are naturally cautious when lending to new business
It is a good idea to present you business plan in a word processed form
Government Sources:-
There are a bewildering variety of options. Explore as many as possible.
The Local Authority
The Small Firms Service of the Department of Trade and Industry
Development Agencies
Don't overlook the possibility of an E.C Grant

Franchising

This is an increasingly important and popular medium of business. Basically, it means the granting of a right by one person (The Franchisor) to another person (The Franchisee), whereby, The Franchisor in return for an intial payment (The Starter Fee) and further regular payments (Royalites, License Fee, etc.) allows a Franchisee to use the Franchisor's trading name, trade marks and business systems.

Many people sign Franchise Agreements with little or no understanding of the "small print". The following points should be carefully considered:-

• What is the duration of the Franchise Agreement? It should be sufficently long to allow the Franchisee to recoup his capital outlay.
• Is there a right to renew?
• What backup service will the Franchisor give in relation to training, promotion, equipment etc.
• Does the agreement provide for a fixed percentage of the Franchisee's gross turnover?
• Does the Franchisor apply an increased mark up on goods supplied?
• Is there any limit to his/her right to do so?
• Can the Franchisee transfer the agreement to anyone else?
• Does the Franchisee enjoy exclusive geographical territory?
• Does the Franchisor guarentee the quality of any goods supplied?

The foregoing are some of the critical questions upon which we can advise you.

Premises

Buy or Lease:  Generally it is better to buy, but you may need the capital for other purposes.

Erection and Alteration of Building/Change of Use: There are a number of points to be considered. Such as are there restrictive covenants affecting building work and proposed change of use? Or are there any easements which are likely to restrict your plans? Not only do these matters have to be considered, it is doubtless that Planning Permission and Building Regulation Controls will apply.

Running The Business

Consider these points:-

The Food Act & Food Hygiene Regulations
If you are running a food business, these regulations will apply. Your Local Environmental Health Officer will usually be pleased to advise you.

The Offices, Shops & Railway Premises Act 1963
If you are running an office or shop where people are employed, this Act will apply. The Act covers such matters as cleanliness, temperature, ventilation, toilet and washing facilities.

The Factories Act/Health & Safety at Work Act 1974
If your business involves the use of machinery, you should check the requirements of the above legislation in relation to fencing and guarding machinery. Again your Local Environmental Health Officer will be pleased to advise.

Insurances
If you have employees, the Employers Liability (Compulsory Insurance) Act 1969 stiputlates that insurance cover is compulsory for bodily injury or disease sustained by employees arising out of the course of their employment. Public Liability Insurance is clearly wise. Other insurances which you should consider are Property and Contents, Damaged Stock, Loss of Profits and Key Man Insurance.

We can advise you generally on these matters, but there is no substitute for the services of a specialist insurance broker.