Statistically, history shows that over half of all new businesses fail within the first few years. There is no doubt that not all those businesses were “bad ideas”. The most likely problem was a failure to prepare. There are therefore a number of things that a new business (and existing business, if it does not already have them) will need to consider:
Trading terms with suppliers and customers: These set out the entitlements and boundaries of liability of the business. Where a business is selling goods or services to consumers (as opposed to other businesses), there are additional issues to consider, to ensure the business avoids offending consumer laws – for example, businesses may need to consider complaints procedures, trading on the internet, cancellation of contracts, and how products will be returned. The Consumer Rights Act 2015 has introduced enhanced consumer measures and enhanced business sanctions for breach of consumer rights. Read more in Nick Mayles’ article here.
In many cases trading terms will form the basis upon which the business derives income and suffers liability, so at TSP we would always recommend that these issues are considered when a business is first being set up to help avoid what can sometimes be costly disputes in the future.
Staff: A new business should also consider whether staff may be required and, if they are, contracts of employment should be put in place. A legal requirements for staff employed for more than 2 months or more, a contract serves to give certainty, and to protect not only the staff, but also the business. Richard Porter, who leads the TSP Employment Law team, is a great advocate of the importance of employee contracts and of using these and handbooks containing policies and procedures as a business tool. You can read more here.
Finance: A business may also require finance of some sort – perhaps to fund initial outlay for start-up costs, until the business starts to generate income – such as paying for stock, staff, premises, equipment or advertising. This being the case then the business may require bank funding, and, if so, the bank will want to see a business plan. A business plan is always a good idea, irrespective of any bank involvement or the number of owners. It allows the owners to focus on matters like income projections and cash flow forecasts, target market and strategy, and it also demonstrates a commitment to the business.
It is quite usual for a bank (or any other finance provider) to require the owner to invest funds as well, again, to show commitment to the project. It is also worth checking whether there may be any subsidies or grants available from the government and local authorities, or perhaps other charitable and business development organisations.
Physical Location: A business should also consider where it is going to trade from – what is the physical location of the business and possibly whether it will need a “headquarters”, or perhaps a shop-front? If it does require a property this will probably mean the business will need to enter into a lease of some description, and therefore it is important that the terms of that lease fit with the owners’ requirements, and that advice is sought from a solicitor. Our Commercial Property team can help with this. Read more here.
There are also a growing number of online businesses where the owners run small businesses from a laptop or home-based PC and therefore having business premises from the outset may not be key. However, if that is the case, having a good website will be very important as this will effectively become the online shop-front of the business.
Insurance: All businesses will almost certainly need some form of insurance, whether it is employers’ liability insurance, which is mandatory for businesses that have employees, public liability insurance if you are dealing with members of the public on your premises, or product liability insurance if you supply goods.
Specific Conditions: Some businesses may need to comply with specific conditions particular to the sector in which the business will operate. For example, authorisation would be required if the business is in the banking and financial services, or in telecommunications, energy, food and drink sectors, or if the business offers consumer credit. It is worthwhile checking these issues well in advance of your new business going live.
If you need more advice on any of the topics mentioned above the TSP Business Services team would be happy to help. Contact them here.