Category: Starting a business articles

When you start your own business there are a lot of decisions you need to make. But before you jump in, the first thing you need to do is choose the right legal structure for your business start up.

Choosing the right business legal structure is vital as it can affect the amount of financial risk you’re taking on, the amount of tax you have to pay, the control you have over your new business, and the administration you’ll need to do.

But do you form a limited company? Form a business partnership? Or act as a sole trader?

Here’s a brief guide to the different business legal structures you can choose for your business start up:

Business legal structure #1: Sole trader

Operating as a sole trader is the simplest form of business legal structure.

As a sole trader you are in charge of all aspects of your business start up. You’re personally liable for all debts of the business, even in excess of the amount invested. You and the business are considered the same entity.

Pros of a sole trader:

• There is no requirement for you to file Accounts or Annual Returns or other information at Companies House, which means that you have greater privacy.
• You are in complete control of the business.
• You may pay less tax.

Cons of a sole trader:

• Unlimited liability – you’re personally liable for any debts run up by your business start up, no matter how incurred, which means that your personal property can be used to settle business debts.
• Potential difficulty in raising capital because you cannot transfer an interest in the business to investors as security for their investment.

Business legal structure #2: Business partnership

A business partnership involves two or more individuals carrying on a business together with a view to profit. Each business partner is personally liable for all debts of the partnership, including those incurred by the other partners.

So, when you’re forming a business partnership, it’s important to draw up a Business Partnership Agreement. A business partnership agreement gives a proper foundation to the business relationship and it outlines how any problems will be resolved, should the business get into trouble.

A business partnership agreement is also part of the evidence that you must give to HM Revenue & Customs to prove that the business partnership is in existence.

Pros of a business partnership:

• There is a broader management base than a sole trader.
• You may pay less tax, by avoiding double taxation, for example. This is where the company pays corporation tax on its profit, but later the shareholders effectively pay tax on the same profits through capital gains tax on the sale of their shares and income tax on their dividends.

Cons of a business partnership:

• There is unlimited liability for all the business partners. The personal assets of each business partner are available to satisfy the debts of the business partnership.
• Obtaining large sums of capital is relatively difficult as investment cannot be obtained from new shareholders.
• Business decisions taken by just one partner bind all the business partners.
• The business partnership may come to an end when existing business partners leave or die. If there are two business partners and one leaves or dies, the remaining business partner automatically becomes a sole trader, unless s/he admits another business partner.
• It may not be easy to sell or transfer an individual business partnership interest.
• Some tax incentives, such as employee share option schemes, are not available to business partnerships.

Business legal structure #3: Limited liability partnership (LLP)

The business legal structure of a limited liability partnership (LLP) is similar to an ordinary business partnership in that a number of individuals or limited companies share in the risks, costs, responsibilities and profits of the business.

But with a limited liability partnership the liability is limited to the amount of money the business partners have invested in the business and to any personal guarantees they have given to raise finance. This means that business partners have some protection if the business runs into trouble.

Pros of a limited liability partnership:

• Limited liability partnerships retain the flexibility of a business partnership.
• With a limited liability partnership, your personal liability is limited.

Cons of a limited liability partnership:

• Limited liability partnership formation is more complex and costly than that of a business partnership.
• Problems can occur when there are disagreements between the business partners.

Just like a business partnership, it’s important when forming a limited liability partnership to draw up a Limited Liability Partnership Agreement.

Business legal structure #4: Limited company

The benefits of forming a limited company are limited liability and raising capital easily. But the advantages of this business legal structure may not outweigh the disadvantages of higher costs, increased paperwork and greater regulation to which you will be subjected once you form a limited company.

Pros of limited company formation:

• Limited liability. The shareholders are not personally liable for the debts of the limited company. The limited company can only ask shareholders to pay for their shares in full, if they haven’t already done so. The shareholder’s responsibility is limited to this amount and this amount is determined when the shareholder agrees to buy shares. Should your business start up fail, the creditors cannot obtain possession of shareholders’ assets, such as homes or cars, in settlement of debts. But the directors may find themselves liable to pay the limited company’s debts.
• Capital can be raised with relative ease because investors can buy shares in the limited company. But this doesn’t mean that a new company can simply offer shares to the general public. Share offers are regulated by law.
• Subject to the Articles of Association, shares can be transferred to existing members and to family members as gifts or otherwise. It’s possible to sell your shares in the limited company to other people, but not in a general offer to the public. Investors in a private company don’t receive the same protection as they would have if they were investing in companies listed on the Stock Exchange.
• Since the limited company is an independent legal entity, it doesn’t cease to exist because one of the shareholders dies or retires. So it’s easier to ensure the continuity of a limited company than of a business partnership.

Cons of limited company formation:

• The limited company must comply with statutory rules and disclose information to the public.
• A limited company is usually the most expensive form of business to organise and run, although a business partnership can be equally expensive, especially a Liability Limited Partnership.
• Both the limited company and the individual shareholders have to make tax returns.
• Record keeping (such as keeping a minute book) can be more extensive for a limited company.
• Winding up a limited company and, in many cases, even changing the business legal structure can be more complicated and expensive than for business partnerships and sole traders.
• Any money in the company’s bank account belongs to the limited company and it can only be taken out as a dividend or wage, or set against money you put into the business.

For help and advice on forming up a limited company yourself, read our Limited Company Formation Kit, which provides all the guidance and company formation forms for you to use.

Related Articles:

• How to form a limited company
• Choosing the right type of limited company to form

Related Products:

• Limited Company Formation Kit
• Ready-Made Company Resolutions & Company Minutes
• How to Run a Limited Company Guide
• Business Partnership Agreement
• Limited Liability Partnership Agreement

 

Published on: October 11, 2010

When you’re self-employed, the most important thing you need to do is prepare accounts correctly and there are many business benefits to be gained from keeping records.

It saves you money, and time, whenever you need your accounting figures to back you up. Keeping records ensures that you only pay the tax you have to pay and it helps you to keep up to date with how much you owe and how much you’re owed.

If you’re slapdash at keeping records and fail to pay the right amount of tax, then you’ll face huge fines from HM Revenue & Customs and you’ll lose financial control of your business.

Here’s an outline of what records you must keep, and give to your accountant, to make sure that you don’t fall foul of the taxman and so you can evaluate your profit and loss effectively.

You must keep a record for every single transaction – whether it’s income or expenditure. If you don’t keep records, then how will you remember, or your accountant even know, that the transaction took place?

Some people who are self-employed hope to dodge tax by failing, on purpose, to keep a proper and complete record of their income, but this kind of behaviour is wrong, dishonest and illegal. HM Revenue & Customs nearly always find out that it’s been going on and in revenge (as it were) collect all the unpaid tax going back for as many years as necessary. They will also charge interest on the late payment and you’ll have to pay penalties (i.e. fines), as well, by way of punishment.

Here’s a list of what records your accountant needs to prepare accounts properly and to comply with the law:

• Cheque book counterfoils
• Invoices for expenses paid by cheque
• Invoices for expenses paid in cash
• Paying-in books
• Copy sales invoices or other vouchers giving evidence to all monies received by cheque and cash
• Bank statements
• Wages records
• Any other books in which you have recorded your transactions

At the end of the accounting period, they’ll also need:

• A statement of money owed by you – the ‘creditors’
• A statement of money owed to you – the ‘debtors’
• A list of unsold stocks on hand at the end of your accounting period

As long as you’ve methodically kept all of these items, then you’ll have prepared accounts correctly.

Remember, also, to keep records of your business transactions for six years.

Six steps to financial control

1. Work out your anticipated income from sales (including VAT) for the year.
2. Add up your cost of sales, i.e. the cost of purchasing goods for processing or resale (including VAT) for the year.
3. Calculate your overheads and outgoings, etc. (and don’t forget VAT payments, loan repayments, capital purchases, contingencies, taxation and drawings, all including VAT) for the year.
4. Make sure that number 1 is greater than 2 + 3.
5. Divide the total of 2 + 3 by 12. This is the maximum amount you can spend in any month. Don’t ever exceed it and don’t pay any bills that will push you over this limit until the following month.
6. Divide your total sales by 12 and make sure that the total of your sales invoices reaches this figure, at least, each month; then work on your customers to keep the cash coming in.

Result: the finances will then look after themselves.

More expert guidance on the day-to-day practicalities of self-employment, as well as advice on how to prepare accounts and put together cash flows, can be found in Lawpack’s Self-Employment Kit. Written by award-winning accountants, the Self-Employment Kit tells you how to get started in working for yourself, how to put together budgets, and how to offset costs and expenses against your tax bill.

Published on: September 3, 2012

by Sarah Ashcroft

In these difficult economic times, starting up your own business or even keeping an existing one afloat can be a huge challenge. One of the greatest issues that is likely to face you in this regard is commercial funding, which is absolutely crucial to the long-term health of your business.

The good news is that you have plenty of options open to you when it comes to securing business funding. So you shouldn’t face too much hardship finding a deal with terms that suit you and your company, and that doesn’t place serious pressure on you to make repayments.

1. Apply for a business loan

Business loans are a common way of bridging a financial gap and can provide an immediate injection of cash that will help your company achieve its short-term goals.

However, you must be wary of the interest rate at which you borrow, as this has the potential to be a problem in the months and years to come once you have started to repay. Despite this, reasons for getting a business loan include the potential to pay for new assets or provide start-up capital.

Loans are not repayable on demand, while they can also be tied to the lifetime of whatever you’re using them to buy.

If you’re a young entrepreneur and want to start a business, you can apply to the government’s Start-Up Loans scheme, which gives out loans of approximately £5,400.

Business loans don’t have to be from a bank, but can be from any trusted third party. Should you find someone who is willing to lend you money, Lawpack produces a Business Loan Agreement. This solicitor-approved template outlines the terms of how the loan will be repaid and gets the agreement in writing, without you incurring lawyer fees in getting a contract drawn up.

2. Use an overdraft facility

Making use of an overdraft facility with a bank is another good idea should you need to boost the capital available to your firm. One of the greatest plus points of an overdraft is that you will only borrow exactly what you want to use, so there is no need to pay interest on any surplus cash.

3. Find an investor

Looking out for an investor is a move that many businesses make. This involves a part of the firm effectively being sold to an outside individual or organisation in exchange for investor finance, which can then be used to carry out vital tasks and acquisitions.

Of course, you must be aware that the investor will then be entitled to a share of the profit your company makes. But on the other hand, they can offer new skills or knowledge to the business, while you will not have to repay interest as you would with a more traditional loan.

4. Apply for a grant

If you’re of the opinion that a grant would allow you to achieve exactly what you hope to, then it might be worth making an application. UK companies can apply for a grant from the government, the European Union, a local council or charities, so there are plenty of options out there.

The government website lists all the grants businesses can apply for and there are hundreds, so take a look!

As you might expect, there is plenty of competition for grants, but if you are successful it’s effectively free money as you will not have to repay it or meet interest repayment demands.

It’s clear there are many options on how to get funding for your business, it’s simply a case of finding the most effective one for you.

 

Related articles

• How to write a winning business plan
• Self-employment: how to keep proper accounts
• The secrets of creative accounting

 

External links

• Gov.uk: Finance and support for your business
• j4bgrants.co.uk

 

Published on: May 31, 2013

Founding a start-up business can be an incredibly tricky task. You will often find yourself convinced by the product or service you wish to promote and boasting the right personnel to turn your dream into a reality, but it’s difficult to start without the necessary capital to get things off the ground.

At these difficult times, you need to think long and hard about exactly how you can raise the funds needed to begin with a start-up venture. While there is no guaranteed path to success, the good news is that there are plenty of possibilities you might want to consider.

1. The bank

Of course, the most obvious starting point is the bank where you will ask for a loan to cover your initial expenses. If you are confident that you can order goods with payment at a later date and secure credit from various companies, you might not need a huge sum, but most people will need to cover their outgoings for a significant period of time.

2. Get a partner

In some ways, seeking finance for a start-up is a little like dating. You need to flatter potential partners and talk up your own credentials. If you do this, you might just find that somebody takes a liking to you and what you have to offer and backs your project.

3. Borrow from friends and family

Perhaps a more likely route to finance is through people you already know. Borrowing smaller amounts from a series of friends and family members can be an effective way to raise the amount you require to get your new business moving. So spend some time considering exactly who you know who might be able to help you.

Remember you are asking people for money, so you will need some evidence and projections to back up your venture. You cannot sell it on opinions and hope, so unless your record already shows immense success, you will need to delve a little deeper to prove your case.

It is also worth considering the personal impact on the people you are borrowing from. If you know that your grandmother is investing her life savings in your business, you should take a step back and suggest that she should only hand over what she can afford to lose. A little morality at this stage can make you easier to back again in the future.

Another issue to consider is that of personal guarantees. This is where a lender – such as a bank – will ask you to guarantee a loan with one of your private assets, like your home. It is rarely worth doing this as you only stand to lose out heavily if things go wrong, so seek finance without this string attached.

There is plenty to consider but if you do so effectively you might just put your start-up in with the best possible chance of taking off and enjoying a long period of success. If you get it right, you can set yourself up for life with your own business that delivers results and never relies on anybody else’s cash again.

Related articles

• How to create a business partnership agreement
• What is a joint venture and how do I start one?
• How to write a winning business plan

 

Published on: November 30, 2012

Across the country, many budding businesspeople with great ideas and products they would love to bring to the market are put off the idea of doing so because they feel that they don’t tick all the boxes required to make a go of their venture.

The truth is that, in some cases at least, they don’t. After all, why should a fantastic inventor know anything about marketing, book-keeping or retail? It goes without saying that everybody has different skills and what is second nature to some will seem like an insurmountable task to others.

In such instances, rather than giving up on plans and dreams and confining perfectly good ideas to the bin, a good option is to think about a joint venture.

A joint venture is where more than one party teams up in a bid to deliver a product or service with huge success. For the reasons we have already touched upon, doing this alone is simply not an option for many, so finding the people and organisations that complement their skills is the key to making their dream a reality.

This allows businesspeople to get their ideas off the ground, as suddenly they have access to the abilities, technology or knowledge that was previously preventing them making a success of their plans.

For example, somebody who has created a revolutionary product that is set to take the market by storm but has no idea of how to promote it can team up with a marketing guru, who will ensure that the item is advertised and driven towards those who might buy it.

When turning to this option, people must remember to draw up terms and conditions that suit them prior to signing anything.

The last thing anybody wants is to find out just a few weeks into a joint venture that they believe that they are putting in too much for too little reward, so deciding on the perfect set-up is not something to rush through.

On a similar theme, identifying the right type of joint venture is another important moment. If the parties want to deal with just one contract, a separate joint venture business is often a good idea, while a business partnership or a limited liability partnership can be a great alternative.

Some people might even decide to completely merge their company with that of their partner.

Of course, a common concern might be how to find the relevant individual or business. A joint venture is only of use if the parties who need each other can be put together, so how should people make this happen?

A good place to start is the internet. Businesspeople should think about trawling through online forums in search of the person they need to help them get their project off the ground, while contacting website owners is another good idea.

No matter what sector the scheme lies in, there will be somebody, somewhere who has all the expertise required to launch it.

Another possibility is word of mouth, as it can be amazing just how much knowledge and experience is contained within friends and friends of friends.

However people go about finding their ideal joint venture partner, it’s always possible to come to an agreement with the right person and launch any business.

For more information, you can acquire our Joint Venture Agreement, bringing you one step closer to setting up a business in partnership with another person or company.

 

Related articles

• How to draw up a joint venture agreement
• Why starting a joint venture is a great way to success

 

Published on: August 28, 2012

You have worked hard to build up your small business and now the time has come to put it into the hands of a new owner who will able to further compound its success.

This can be an emotional time for you as you prepare to wave goodbye to an idea that you have plugged a lot of time and effort into.

Still, selling a small business can also provide great satisfaction, and hopefully profits, but ensuring the process goes through smoothly is paramount to preventing it from becoming too costly.

Here are our top tips on how to sell a business smoothly and successfully.

1. Plan early

The first step for selling a small business is planning early. Securing a buyer and processing the transaction can take months or years, so you need to ensure that time is on your side.

2. Get it in writing

A business sale agreement is an ideal document that will help you outline the main details of the transaction, such as what assets are to be transferred and the amount to be paid for the business.

It is worth nothing that this business contract template applies to the sale of a small business, which is not a limited company, or the sale of assets held by a limited company.

3. Have a price in mind

It’s a good idea to have an approximate price tag in mind when selling your business as this gives you and the potential buyer a number to negotiate around.

Put a negotiator between you and the buyer to thrash out the figures as this will prevent the relationship from turning sour if a problem or conflict occurs.

4. Get organised to avoid delays

When approached by a potential buyer, ensure that they are serious about the transaction, as timewasters will cost you money.

You don’t want the sales process to carry on longer than it has to, so make sure all the necessary arrangements are in place to avoid delays. This not only cuts costs, but it helps to prevent frustrations arising on both the buyer and seller’s side.

5. Get the right advisers

You will also need advisers to direct you on the right course of action for the sale. These can be brought in at a later stage, but you must ensure that they have strong experience and knowledge on selling a business.

6. Understand the market

It’s paramount that you as a business owner understand the market for your business to be able to identify the most appropriate buyer.

In addition to this, it’s a good idea to make you business well-known in the industry ahead of the sale, which can be done through better engagement with trade bodies, for example.

7. Reveal details slowly

No one would suggest you to pull the wool over your buyer’s eyes, but that doesn’t mean you need to disclose every failure from the word “go”.

As the relationship between you and the buyer grows, you can begin pointing out some of the negatives, as well as the positives, of your business.

8. Sell at the right time

A great way to highlight the success of your business is to make sure profits are roaring near the time you decide to sell it – after all, this tells buyers they are investing in something that is already a success.

When selling your business, get the sale in writing by downloading Lawpack’s solicitor-drafted Business Sale Agreement, which outlines the details to be included in the sale.

Published on: July 4, 2012

A limited liability partnership (LLP) is very similar to a limited company, but it has the flexibility of a business partnership.

A limited liability partnership shares many of the features of a normal partnership, but it also offers reduced personal responsibility for business debts.

Unlike sole traders and partners of normal partnerships, the limited liability partnership itself – not the individual members – is responsible for any debts that the LLP runs up, unless individual members have personally guaranteed a loan to the business.

Limited liability partnerships are more complicated and more expensive to set up than normal partnerships, as they have to meet many of the same requirements as limited companies.

An existing company cannot be converted into a limited liability partnership.

LLPs are designed to be used by profit-making businesses. Non-profit making organisations should not use this business structure.

Who can set up a limited liability partnership?

An LLP can be formed by two or more people who want to set up a profit-making business. Such people are called members, and members can also be firms as well as people.

How many members should an LLP have?

An LLP must have at least two members. Two of the members will be called ‘designated members’. Their details, and any changes in those details, must be submitted to Companies House.

What are the rights and responsibilities of LLP members?

LLP members normally share in both the responsibilities of running the business and the profits. But exactly how their rights and responsibilities are defined and divided depends on the limited liability partnership agreement.

What responsibilities do the designated members have?

Designated members have the same rights and duties as non-designated members, but they have additional responsibilities such as appointing an auditor, signing the accounts, delivering accounts and the Annual Return, and notifying Companies House of any changes.

What happens if the number of members is reduced?

If the number of members falls below two and remains as such for more than six months, they will lose the benefits of limited liability.

Does the company need to be registered at Companies House?

Yes. If you wish to register the LLP yourself, you must complete application form LL IN01 and send it along with the appropriate fee to Companies House.

Is a limited liability partnership agreement necessary?

It’s not absolutely necessary, but it’s a good idea to make a draw up a limited liability partnership agreement as it helps to prevent misunderstandings and disputes between members.

If the members don’t have one, they will be governed by the terms of the Limited Liability Partnerships Act 2000 (LLP Act 2000), which doesn’t offer solutions to many of the problems that can arise. The Act also may not suit the way that members of an LLP may want to work together.

Get expert help drawing up an LLP agreement with Lawpack’s solicitor-approved limited liability partnership agreement template.

How to name the LLP?

The name of the business must end with the words ‘limited liability partnership’.

The name must be displayed in the same manner as a limited company’s name. The LLP’s stationery, websites, emails, etc. must display the trading name, the fact that it is an LLP, the place of registration, the registration number, and the address of the registered office.

What taxes are paid by an LLP?

An LLP is taxed as a partnership. Like general partnerships, profits are shared among the members of an LLP. Individual members – not the limited partnership – pay tax on income or gains.

What about the company accounts?

LLPs must make their accounts and registers available for inspection.

LLPs are liable to similar penalties for late submission of accounts, etc., and the accounts must be prepared according to statutory rules.

External links

• Business Link
• Wikipedia
• Companies House

 

Published on: November 18, 2011

So your business is thriving and you want to know what the next steps are to broaching new markets, expanding and perhaps even making a go of it overseas. In that case a joint venture could be just what your business needs.

The great thing about joint ventures is that they can last for as long, or as little, as both parties would like. In the meantime, you have the advantage of strengthening your presence in the industry, as well as establishing strong connections with your partner company.

Joint ventures also allow you to share the risks and responsibilities with another body, also hopefully helping you generate bigger profits as you grow your business at a quicker rate than it would have on its own.

Furthermore, when trying to expand, it can be a real drag seeking funding from banks or investors but in most cases a joint venture will be enough to fuel the costs of growing your business.

Your customers might also delight in the greater range of services or products you will be able to offer; not to mention the fact that you’ll have more customers to make these great offers to.

Ultimately, joint ventures are useful because of the flexibility – you don’t have to commit everything to them, but can pick and choose just how much of your existing business you will invest.

Here are our five steps to setting up a joint venture.

1. Do your research

The main thing to do before embarking on a joint venture is research. Conduct your homework.

Ensure that a joint venture is the best option for your business and know exactly what you want from your partner and what you can offer them.

2. Find a business partner you can trust

The first step in making the commitment to a joint venture is to source the most suitable and trustworthy partner company you can find.

Once you’ve done this, you’re ready to generate a wealth of new opportunities including more resources, greater capacity, increased technical expertise and access to more established markets and distribution channels.

3. Decide on the right type of joint venture for you

Now it’s time to decide just what kind of joint venture suits your objectives and how much managerial control you hope to exercise.

For instance, if you want to sell a product through a larger distribution company, it might be best to agree to co-operate with your new business partner in a limited and specific way.

Alternatively, it could be better to create a separate joint venture business, whereby a new company is created to handle certain contracts.

The partners each then own shares in the business and make decisions about how it should be run, which can prove successful because of its flexibility.

It might also be your preference to go the whole hog and combine the two companies into one, but make sure you seek strong legal advice before doing so.

In each case, legal advice is recommended so that you ensure you choose the appropriate joint venture agreement for you and your new business partners.

4. Agree with your partner on what you want the joint venture to achieve

Make sure you and your partners are on the same level about what you intend the joint venture to achieve, what the company will offer and who will take responsibility for what.

This even boils down to one of the most basic principles of running a business – whose name will be on the bank accounts?

5. Get the agreement in writing

There can be risks involved in setting up a joint venture, so a joint venture agreement is vital.

If the joint venture agreement is unclear or burdened with mindless jargon that in effect means nothing, disputes or problems can arise, so more than ever, the agreement should be clear, concise and comprehensible.

When creating a joint venture agreement, your written document should include the following:

• The structure of the joint venture (e.g. what kind of agreement will it be?)
• The main aims of the agreement
• The financial contributions you and your partner agree to make
• Whether assets or employees will be transferred to the joint venture
• Who takes ownership of the intellectual property
• Who will take managerial responsibility
• How disputes or disagreements will be resolved
• An exit strategy, i.e. how the partnership will be dissolved

Get expert help with making an agreement with Lawpack’s solicitor-approved Joint Venture Agreement template.

Other information

• What is a joint venture and how do I start one?
• Why starting a joint venture is a great way to success

External links

• Wikipedia

Published on: October 21, 2011

If you’re thinking of starting your own business, you may have considered franchising as an alternative. There are several benefits associated with owning a franchise business, particularly in today’s uncertain economic environment.

Franchising gives you an established brand name under which to operate, so your customers will recognise you instantly. You’ll also receive ongoing support and guidance from your franchisor, helping you to navigate the often complex worlds of financing, marketing, recruitment and customer service.

Becoming self-employed

Thousands of people lost their jobs during the recession, and while some were lucky enough to find new posts, others found themselves stuck in a highly competitive jobs market with few opportunities.

As a result, the number of people starting up businesses has risen. Indeed, the idea of becoming self-employed is an attractive one to many of those who have toiled with long working hours and heavy workloads

But the economic environment remains uncertain and businesses are still struggling, which means starting up a new company is not without its challenges.

That’s why many entrepreneurs have gone down the franchising route, as it offers them a more accessible route into the world of business ownership at a time when companies around the world are fighting to survive.

What is franchising?

Franchising is a business model under which the owner of a business format grants licenses to others to sell their products or services and trade under their name for an initial fee and a percentage of sales revenue.

In return, they provide ongoing help and support, often in the form of staff training, product development, advertising and management services.

While the franchisee owns their particular outlet, the franchisor has control over the intellectual property and determines how products are marketed and sold, and how their business format is developed.

Brand identity

One of the most difficult tasks for any new business owner is creating a brand identity that customers can trust. With franchising, a brand identity already exists and often consumers are well on board with the business format.

For this reason, an entrepreneur opening up a franchise business is likely to turn a profit much more quickly than a start-up company.

Indeed, the latter may spend months getting its name out there and convincing consumers that their products and services are worth buying, whereas a franchisee can get straight down to the business of meeting customer demand.

A proven business model

No matter how much research an entrepreneur carries out before setting up a new business, there is always an element of risk involved, particularly if competition in their sector is high, or their product offering is relatively niche.

With a franchise, the business model has already been tried and tested, so the risks of failure are much smaller. Any mistakes that are made along the way are translated throughout the franchise system, so franchisees don’t have to through their own individual learning curve to reach the top.

Ongoing support

Entrepreneurs who set up their own business are pretty much on their own, unless they pay for expert guidance. In franchising, ongoing support is offered as part of the package, at the outset and as the business grows.

Training is usually offered once a franchise deal is signed, equipping franchisees with skills in sales, financing and other key areas necessary for the ongoing success of their business.

Some franchisors also help franchisees with product research and testing, as well as offering group buying discounts and running national advertising campaigns, leaving owners to get on with their day-to-day operations.

Franchising too is not without risk

In some cases, franchising sounds too good to be true, and this may be the case. Franchisors differ significantly in terms of brand recognition and the support they provide, as well as the ongoing fees they charge.

For this reason, thorough research is needed to determine whether a franchise business is likely to be a success. Some franchisors may begin franchising too early and their brand may not be so well known in certain parts of the country, or indeed the world.

Franchisees should be clear on all costs before signing a contract and make sure they determine the level of customer demand in their area.

Perhaps one of the most important things for a potential franchisee to remember is that their creativity and flexibility are limited through the business format franchise model.

Those who truly want to be their own boss and make their own way in the world of business should therefore think carefully before agreeing to trade under someone else’s banner.

But there is evidence franchising works

According to the latest figures from NatWest bank, the business format franchise sector made an estimated £11.8 billion in turnover last year, with 89 per cent of franchisees reporting profitability during 2010.

Contrast these with figures from the Office for National Statistics, which showed that in 2009, the number of business failures outpaced the number of new businesses being started up, and it’s easy to see why franchising is an attractive option.

Published on: March 10, 2011

By Shirley Borrett, Development Director at Telework Association &
Author of Lawpack’s Working From Home Kit

Working from home has been on the increase for the last 20 years as technology has become more effective, cheaper and more secure. Freelancers and self-employed people starting their own business have been the main practisers of home working for a long time, but for a number of reasons over the last few years working from home has been increasing in the business world.

Although many businesses still have their share of dinosaur managers, they are thankfully becoming a threatened species in companies large and small throughout the UK.

Global markets, recession, terrorist threat, natural disasters and environmental concerns have forced companies to examine how to make their businesses more competitive, more productive, more resilient and greener. A well implemented, well managed working from home scheme can make a significant contribution to all those goals.

More productive staff

For the last two decades both research and practical examples have shown that people working from home doing information rich work are more productive than their office-based counterparts.

When the AA moved some of their staff from call centres into their own homes they found that the productivity of the home working people was 36% more than the call centre ones – and customer satisfaction went up too. The quieter environment of the home meant clearer, shorter conversations with vehicle drivers in trouble. It was easier to get people to work split shifts to cover morning and evening rush hours when they only had to travel to their spare room. Less stressed, more comfortable, happier staff resulted in them dealing with lots more calls per hour.

Research by the Telework Association published in 2010 revealed not just that 85% of respondents thought they were more productive working at home, but that 68% of those could actually measure their increased hourly output. That increase in hourly output included a quarter of people whose additional productivity was more than 50%, a quarter who were between 30% and 50% more productive and four in ten measuring it between 10% and 30% more productive. The remaining people produced up to 10% more in an hour.

Amongst the many practical reasons given for this increased productivity, a significant number of people talked about ‘repaying the trust’ that managers showed by allowing them to work from home. This is of course likely to lead to greater loyalty, less staff turnover and lower recruitment and training costs.

A more resilient business

Business continuity makes a significant contribution to the bottom line – with tight margins, if a business suffers major interruptions, profit will easily disappear. So, regardless of terrorist threat, flood, snow, earthquakes, ash clouds, train driver strikes and 10 miles of stationary traffic on the M25, people have to be able to get to work and be productive. They can do that much more reliably and consistently if all they have to do is walk to their spare room or battle across their snow-covered lawn to their garden office.

Greener businesses

More staff working from home and less working in company offices mean that companies needs fewer square feet of expensive office building. This not only saves on costs but also uses less electricity and makes for a smaller carbon footprint. And if employees aren’t commuting on a daily basis, not only will carbon emissions drop but travel congestion will reduce, making commuting easier for those who can’t work from home, like nurses, doctors, teachers and all the emergency services.

Companies more attractive to employees

All companies want to attract the best people to work for them and home working doesn’t just appeal to parents, carers and disabled people. Graduates often cite flexibility in working arrangements as more important to them than a salary increase and a better work-life balance appeals to high-flyers, executives and anyone who has a life and interests outside their work. And as more people become concerned about the impact that their personal lifestyle has on the environment, fewer will be prepared to commit to a long daily commute.

More competitive businesses

Lower office costs, higher productivity, greater loyalty, lower absence and staff turnover, better contingency planning and business continuity will all contribute to making a company more competitive and more profitable. And the company will be contributing to safeguarding the environment.

All these factors make flexible and home working a ‘good thing’ for individuals, for organisations, for UK plc and for society and the environment. Enlightened managers are recognising the potential benefits and encouraging suitable employees to take up home working for all or part of their jobs.

What the employee has to do is put together a good business case to convince their manager that they are suitable to start working from home and that the company will achieve the expected benefits. Get all the tips you need to convince your boss that you want to work from home with Lawpack’s Working From Home Kit.

Related Links:

• Top tips on what you need to successfully work from home
• Six steps to setting up your home office

Related Products:

• Working from Home Starter Kit
• Working from Home Guide
• Running Your Own Business Made Easy
• Starting Up and Running Your Own B&B

Published on: January 21, 2011