Start Up Business Plan and Business Structure
Prepare a business plan before you do anything else. A properly written business plan will not only be an outline of your future business activities, but will be essential when seeking start up capital and financing.
Most new businesses are started by one or two individuals from scratch. Typically, a “one man band” will start up as a “sole trader”. (For further information, see our page on Sole Traders here.)
You might instead decide to start up as a private limited company. Your tax adviser/accountant might advise that it is preferable for you to do so for tax reasons. A company might also provide you with better personal protection from debts and liabilities of the business since a company, unlike a sole trader business, operates as a separate legal entity. A small business might start up as a sole trader operation, and then later “convert” to a company as and when its advisers consider it necessary or desirable. If you give one or more other individuals some shares in return for initial financing (i.e. as investment only - they play no part in running the business), the business should be structured as a company from the beginning.
Buying an Existing Business
Depending on the circumstances - including whether finance is available to meet the cost of purchase) - buying an existing business may be an alternative to starting a business from nothing, and it may be less risky than starting from scratch. However, you will need to carry out careful “due diligence” to ensure that you know what assets you are buying and the liabilities and risks that you are taking on: buying a business presents risks, like buying any other investment.
An alternative to buying an existing business is franchising, where you, as “franchisee”, acquire a license from a “franchisor” to use their business model, know how, name, trademarks, distribution network, and products/services. You pay a royalty to the franchisor and you operate a part of the whole operation. This has the advantage of providing you, as a franchisee, with a business which has existing goodwill, support, backing, product supply, or other benefits provided by the franchisor. Where a franchisor’s existing network of franchisees already provides product/services of a type similar to your proposed business, you might not want to start from scratch and have to compete with that network, and so being granted a franchise from that franchisor might be an attractive option instead.
Partnership/Joint Venture Company
If you are starting up a business jointly with one or more other individuals, you might do so by forming a partnership with them. (For further information, see our page on Partnerships here.) Alternatively, you might set up a private limited company in which you and those other individuals hold all of the shares. If, say, there are three founder shareholders including you, and you each hold, say at least 20% of the shares, you will all wish to be directors of the company. The details of any such partnership or company arrangements should be set out in formal agreements, and you should take legal advice about all of the terms of the agreements. Each of you are likely to have conflicting interests, different circumstances and interests, and so you and each of the other partners/shareholders should seek separate independent professional legal and finance/tax advice.