The first thing I want to make clear here is, the legal entity cannot be decided by just reading this bite sized post, you need to seek professional advice, at which point it will be discussed with you in more detail.

The legal status your business takes maybe decided by what industry you are working in. Some industries only accept people who work through a limited company, or you may be very poor at recording anything, and unless you can change this, operating as a limited company could at worst land you in hot water, or, at the very least result in your accountant pulling his/her hair out!

The four types of status I am going to give you some bite sized details on are:

1. Sole trader
2. Partnership
3. Limit Liability Partnership
4. Limited Company

Sole Trader

This is by far the easiest type of status to set up (details on registering with the various government departments will be dealt with in a later post). 

A sole trader aka a sole proprietorship business, is one of the most common types operated by an individual, this may have changed more recently as many of you will know everyone seems to be a limited company these days, even your window cleaner!

The downside to this type of entity is that the business and you are considered the same under law. That means if your business is sued, then potentially everything you own is at risk to!

Another downside, if you make more profits than you draw out, you are still taxed on all the profit irrespective of whether you have taken the money, and with a 40% tax band this can be expensive.

A big advantage, and one which I think is why so many opt for this status, is that this is the easiest form of business to own and operate because it does not require any specific legal organization (once registered with the various government departments).

The Revenues website also gives some useful guidance on how to register as self employed.  

Partnership

This is where two or more individuals join together to run a business.  Like the sole proprietor status you are still liable for any debts personally, but this time they can be shared with your fellow partners.

A partnership is a legal entity that is recognized under law, this means it can sign contracts, obtain credit, anything a sole trader can do, but in this case anyone of the partners can sign and therefore legally bind everyone. So, make sure you know who you are going into business with!

If you are entering into a partnership with someone then you should at the outset have a partnership agreement drawn up, this will detail amongst other things, the authority of the partners, how profits/losses are to be shared, rights and responsibilities of all partners. It is worth noting, once the partnership agreement has been drawn up and signed, it can be modified at a later date.

As with a sole trader business, the individuals are taxed on their share of the partnership profits, regardless of whether they have taken all this money out.

Limited Liability Partnership ‘LLP’

The LLP requires a more formal approach, and entails more ‘red tape’ than the above two types of trading entity.

This status shares some of the characteristics with both a partnership and a limited company. Members of the LLP are registered at Companies House as members.

LLP affords limited liability to its members, but is taxed the same as a partnership.

An LLP is a separate legal entity from its members.  It may enter into contracts etc and sue and be sued in its own name.

For the benefit of this limited liability status for the members there is a downside, with either a sole proprietorship or partnership no one other than those party to the accounts knows anything about your businesses financial position, with an LLP you have to file accounts at Companies House where they are open to scrutiny by anyone who wishes to pay to see them, including your next door neighbour!

There is a lot more ‘red tape’ with an LLP but in the right circumstances they can be a very good and very tax efficient vehicle.

For more on LLP’s visit the Companies House website.

Limited Company

A limited company is a separate legal entity that has substantially all of the legal rights of an individual.  This gives you protection, it is the company that contacts with third parties and therefore if anyone is sued it will usually be the company and not you as the individual.

A limited company must obtain approval from Companies House to use its proposed name.  A limited company must also adopt and file its Memorandum and Articles of Association, these govern its rights and obligations to its shareholders, directors and officers.

A limited company must also file annual tax returns (“corporation” tax returns) with the Inland Revenue just like an individual.

Apart from the protection offered via this status, a limited company has a low starting tax rate of just 19%, it will pay this on all it’s profits (up to £300,000, beyond this the rate increases to the full rate of 30%); now this is attractive if you make enough to pay tax at 40% as either a sole trader, partnership or LLP but don’t take all the profits out to live on.

As you can see, there is a lot to think about, not only what ‘red tape’ is involved with each status, but which status suits your needs for protection, tax, flexibility and the list goes on.

Remember, please don’t try and go it alone, take professional advice, most advisers will give you a free hour.

This I realise is not as easy as it first sounds. When starting your own business you are faced with a multitude of decisions; decisions that without the right players on your team can seem overwhelming.

Remember selecting the right advisors to partner you can eliminate a host of problems and potentially costly errors.

Take the world cup and the various national teams, any of the coaches will tell you having a first rate goal scorer (namely you) won’t guarantee a wining team without having a first rate line of defence. The right accountant, business advisor or solicitor is your defence. It is their expertise that can help you save money that in turn can be used to increase your profits.

Remember, when selecting the expertise of an advisor you want a specialist that meets your specific needs, whether this is industry experience or specialist skills that will help you raise finance.

Above all, you want an advisor who will listen to you and what you want and in return someone who you can and will listen to as they devise strategies to help you succeed.   

Don’t use the first name in the Yellow Pages or the one with the biggest advert, ask around, speak to your friends and colleague in business and ask them if they would recommend their advisors, if not then contact at least three who are professionally qualified and arrange a meeting with them and interview them, yes interview them, if you are going to pay them at least make sure they are your best line of defence!

Remember my earlier posting, 'Not all accountants are created equal (how do you choose an accountant)' (http://www.sme-blog.com/?p=32), now is a good time to revisit this posting before you select your advisor.

Have you ever thought about:

Who looks after your computer when it breaks down?
Who do you speak to when needing financial advice?
Who advises you about particular software to use, or where to get your printing done?

Once you have started your business, it is a good idea to build a support network as quickly as possible. Most people think of business networks as a way to get business but have you ever considered that these are also a source of service providers for your business?

This can be achieved by joining local business networks that are already in operation. In this way you get to meet other business owner/operators and find out who they rely on for stationery, printing, computer support, service providers, telecommunications, software and so on. Knowing that you have a ready group of suppliers means you can establish accounts to operate your business without necessarily having to pay out immediately upon needing something (good from a cashflow point of view). Don’t forget that many of the supplies you use to operate your business could be charged to your clients as a reimbursable expense. This is particularly in the case of printing, stationery, postage and similar other items if you are a service provider.

Where will you find these support networks? Try some of the following:

Business Network International (BNI)
Leads Club
Local Chamber of Commerce
Rotary
Business Referral Groups
Local council or county business groups
Check your Yellow Pages for other membership based groups

Developing a support network around you as you develop your business will help bring in the expertise you need without having to engage employees to fulfil those roles that aren't required on a fulltime or regular basis. KMT

Tags: service providers, business support, business networks, cashflow

In a earlier post I said you should pay your clients. This centers around my believe that any organisation should be customer driven, certainly very small business. Getting new customers can be a very time consuming and expensive undertaking. Keeping your current customers happy and finding out what it is they like about your service / product, is paramount. You can talk to them and make notes, sent them a questionnaire, or you could have them vote on aspects of your service / product.

“Take Polls. Make Polls. See What The World Thinks.” is Vizu’s tag-line. I think for small business, there should be a different tag-line:

Keep Your Business Client Focused - See What Your Clients Think

You can see the Vizu applet in action in my sidebar, please vote. You can also sent your applets out by email, so you do not need to integrate it into your website, you could use it also in your newsletter. It is free to use and I like it so much that we made it part of our up and coming (next week) new AccountsOffice and OnlineOffice release 3.2, see Resources –> Tools.

Vizu will definitely help you to find the answer, but one problem still remains:

Do You Know The Question?

Here I am asking you, my clients:

Do you know a great online business tool for very small business? Then let me and others know by leaving a comment, we will all thank you for that.

Tags: AccountsOffice, Blogging, Business Development, Business Idea, Business Infrastructure, Business Mentoring, Business Start Up, Business Tool, Client Relations, Entrepreneur, FREE Business Tool, Home Business, IT, Micro Business, On-demand, OnlineOffice, Outsourcing, PR, SaaS, Selfemployed, Small Business, smb, sme, sme-blog, Software as a Service, SOHO, Teleworking, VAs, Very Small Business, Virtual Assitants, VirtualOffice, Vizu.com, Web Technology, WebOffice, WinWeb

Jason is writing a series of posts about business start-up. I just have been browsing the Business Link website and found another useful tool, the Business Start-Up organiser.

Here you can answer some simple questions and the website will produce a checklist of things to decide or do for you to get started. I have played with it myself and think it really helps to focus on the things you need to consider.

In a pervious post I mentioned the e-mail alerts for tax deadlines. This is another great tool for very small business.

And best of all, it’s FREE!

Tags: Accountants, Accounting, Bookkeeping, Business Development, Business Idea, Business Infrastructure, Business Link, Business Mentoring, Business Start Up, Business Tool, Cash-Flow, Client Relations, Entrepreneur, FREE Business Tool, Great Business Idea, Home Business, IT, Micro Business, Small Business, smb, sme, sme-blog, SOHO, Teleworking, United Kingdom, VAs, Very Small Business, Virtual Assitants, VSB

Andrew over at trizle has a great and very relevant question today: “Should you build that million dollar product if you’re starting up?“. He is quoting Harvard’s Amar Bhide:

Look for quick break-even, cash-generating projects. The rule in large companies and well-funded enterprises is to stick to the basic strategy. Not so with the bootstrapped start-up. Profit opportunities that might be regarded as distractions in a large company are immensely valuable to the entrepreneur. A business that is making money, elegantly or not, builds credibility in the eyes of suppliers, customers, and employees, as well as self-confidence in the entrepreneur.

This all expresses the simple business truth, small steps, simple products, niche markets, and low overheads, are the way forward for small business. This makes for an environment, were problems are not disasters.

Tags: Business Development, Business Idea, Business Infrastructure, Business Mentoring, Business Start Up, Client Relations, Entrepreneur, Great Business Idea, Home Business, Micro Business, Selfemployed, Small Business, smb, sme, sme-blog, SOHO, The Prince’s Trust, trizle.com, Very Small Business, VSB

If you're like me you use your credit card online to purchase domain names, update software, purchase new software or online services, buy the odd book here and there, and so on. The convenience of buying online just makes things happen faster - and we're in a time where everyone wants things now.

I received a letter from my bank today advising that someone from SHG.D…. tried to process a payment of SEK$20,338.32 - over $3,000 in my own currency to my credit card. The bank knocked it back, thankfully, and then wrote a letter advising me. Turns out there were several other attempts too, but because there were unavailable funds at the time, they knocked it back. I asked the bank officer about this as I saw no evidence on my account online of any debits and credits corresponding to this. She told me they suspected the attempts were fraudulent and that's why they hadn't shown up. She also said they were from middle Eastern countries and one was from Malta and they were fairly sure that I wasn't over there - nor had any of my previous spending habits shown amounts to these values.

I check into my account on a daily basis and reconcile my bookkeeping every 2-4 days, depending on how many entries have occurred. As so many of my clients now pay me online I need to be able to keep my ledgers up to date and it helps me see what else is going through the account - any cheques that have recently been processed, a periodic debit that hasn't gone through yet, and so on. It makes good sense to keep up to date with your accounting and the bank officer this morning confirmed it is also a good practice if you're running an online business. Another good thing is that I usually pay by Bpay and only use my Visa for small incidentals such as the items I listed above - another thing that alerted the bank to the large so-called purchases with my Visa card. Something else that assists is that I shift the larger proportion of my cleared funds into another account, which incidentally isn't connected to my Visa, so that has been a saving grace for me also.

I asked her how they got my credit card and she replied that often software is used to try out variations of numbers with expiry dates and when they find some that work they just keep using them - sounds like they must sell these numbers to others too, hence the use in different countries. I am careful about which sites I use my Visa on and was momentarily concerned that one of these may have been compromised but that doesn't appear to be the case.

I'm hoping my post on this topic may assist you, the reader, in developing a regular habit of keeping an eye on your bank accounts and monitoring any activity that may appear to unusual. KMT

credit cards, visa, fraud, fraudulent activity, accounting, buying online

Many people want to run their own business. Recent years have seen this dream become a reality for some. It may have been because they were made redundant or they may have decided to start up in business to be more independent and obtain the full financial reward for their efforts.

But before you all rush off to start that new business here are a few things to think about:

1. Why are you starting in business? This is not a stupid question to ask yourself, a new venture will be very time consuming and you will need to have total dedication and focus if you are to succeed.

2. What skills do you have? Have you got the required skills for the sector you are entering, if not should you really continue? Remember very few start ups have the financial backing to hire people with complimentary skills in the early stages so you may very well need to be a ‘jack of all trades’, are you?

3. Funding, have you got enough savings behind you to keep you going while the business gets off the ground. It may be better to start off while still employed or if this is not an option at the very least have a well written and realistic business plan that you can present to your friendly bank manager when you ask for those start up funds.

4. Know your market place and competition. I have combined this one, firstly unless you are really lucky and you are in a niche market you will always have competitors, you have to research this competition, make sure what you do stands out from the crowd and is price competitive. And above all, make sure there is a market place for your business, it’s no good if no one wants what you have to offer.

5. I referred briefly to doing a business plan in point three above, this is so very important, there is a saying, ‘no one plans to fail but they do fail to plan’, don’t fail to plan, do a business plan.Even in a simple plan you will at the very least need to identify:
a) where you are now
b) where you want to be in 12 months time
c) where you want to be in five years time
d) How you get from a to b to c

6. The plan will once written need to be refined not only as your business progresses and changes but also as the market place and competition changes.

Remember, although starting your own business can be hard work and very stressful it can also be very rewarding.

Legal Disclaimer:

The information contained in this blog site is of a general nature and is not a substitute for professional advice. You are recommended to obtain specific professional advice before you take any action.

No action based on the content should be taken without seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors,the firm or this site.

Tags: Accountants, Accounting, Bookkeeping, Business Development, Business Infrastructure, Business Mentoring, Business Start Up, Cash-Flow, Entrepreneur, Home Business, Micro Business, Selfemployed, Small Business, smb, sme, sme-blog, SOHO, Teleworking, Very Small Business, VSB

You ever got spam email telling you you can earn thousands from home with little work, etc., etc., well here is what Homeworking.com has to say about that:

There is so much misinformation about working at home. So many signs on lamp posts or in newspapers screaming out and saying you can earn 100-1000 per week for just half an hour work a day! They are all lies!

Now that is sound advice, and the reason why I am telling you about this site. I know about some cases among our clients, were these scams had a devastating effect on clients. So be very careful and have a look at their site.

They inform you about these scams, offer a forum for advice, hints, tips and support. Working from home can be a liberating experience, but it still means work. You know what they say,

“If it sounds too good to be true, it probably is!”

Tags: bad business, Business Development, Business Infrastructure, Business Mentoring, Business Start Up, Entrepreneur, Home Business, Homesourcing, IT, Micro Business, Outsourcing, Selfemployed, Small Business, smb, sme, SOHO, Teleworking, Very Small Business, Virtual Assitants, VSB, WinWeb

Business Link has a great Tax Deadline tool for small business in the UK. Just answer a few questions, and they will sent you an e-mail to warn you about the up and coming tax events you and / or your business need to know about.

If nothing else it will help you to safeguard against penalties. Even if you have an tax-advisor, they could forget the deadline, happened to me more then once.

Needless to say that the Business Link website is full of great tips, information and knowledge for anyone running a business or thinking of starting one. I am a little critical of the business advisor service quality, but the website is a great resource.

Tags: Accountants, Accounting, Bookkeeping, Business Development, Business Infrastructure, Business Mentoring, Business Start Up, Cash-Flow, Entrepreneur, Home Business, Micro Business, Business Link, Selfemployed, Small Business, smb, sme, SOHO, Teleworking, United Kingdom, Very Small Business, Virtual Assitants, VSB