Now that we have finished going through your strategic plan which we covered in my previous two articles, we can move onto something even more important; Operations. How are we going to structure and run this business? I am grateful to my Accountant David Beckman who has helped me greatly over the years.
The most popular choice is between sole trader and limited company. This is an area where it makes sense to take professional advice, but there are three reasons why, from the layman’s point of view, incorporation needs to be seriously considered.
- One is legal
- One is commercial
- One is financial.
The legal reason is all around limited liability. If you set up a company, then it is the company that has the trading relationship with your client, and not you. If for any reason something went wrong and the client, or anyone else for that matter, came after you seeking compensation, the risk would generally be limited to the company’s ability to pay, unless you had been criminal or fraudulent in your activity, or had given a personal guarantee. If you are a sole trader then your entire personal wealth is on the line, including house, savings etc.
The commercial reason: why I think it makes sense is the fact that unless you are offering a traditional “trade”, e.g. electrician, carpenter, plumber or gardener, having a corporate structure may make you more likely to look more credible in the eyes of the potential client; furthermore you may not otherwise be able to obtain access to approved or preferred supplier lists now favoured by many businesses.
The third reason is that, despite Government tinkering, there is still a very marginal tax advantage in being incorporated rather than being a sole trader. I think in reality this is outweighed by the commercial and legal reasons, but this is my own personal opinion; please talk to an accountant or lawyer.
If you opt for the sole trader structure, you just need to open a “number two” account at your bank set up in your trading name.
If you go down the corporate route, you will need to open a company bank account, which you can’t do until you have a Certificate of Incorporation and Memorandum of Articles of Association.
In terms of Incorporation you have three options. In order of cost you can do it yourself (and the Companies House website is very user friendly), you can pay a company formation company to do it for you, or you can get your accountant or lawyer to do it for you.
Finally, there are five basic legs to your supporting infrastructure:
These five areas, together with marketing and sales, will be where you incur costs.
We will now have a business structure. We will have robust documentation. We will have a simple but effective CRM system to keep track of your clients and prospects. We will have a delivery process to maximise repeat business and get referrals from satisfied clients. We will have a culture of quality control, with regular client reviews and business improvement reviews.
I know this sounds like a lot, but don’t get put off! Running a successful business does not happen overnight, and there are bound to be times that are a little difficult. But just remember why you are doing this and what you aim to get out of the business, and don’t be afraid to ask for help! If you need a little extra guidance you can always contact me.