So you have a great business idea. How do you turn that into a robust business plan?
Here are six areas you should be thinking about:
1. Business Plan
Have you sufficiently stress tested your idea?
- Is there proof of concept?
- Is there a market?
- What are the funding requirements?
- When do you break-even?
- Who are your competitors?
- What is your route to market?
- What are the barriers to entry?
- Have you made a SWOT analysis?
- What is your product’s USP?
- Have you created a message/ vision/mission statement?
You need to have these points clear in your mind and then be able to put those into a convincing document that will carry your message to lenders, investors and customers.
2. Raising Finance
Broadly, the following types, or combinations of finance exist:
Own/family and friends – Generally the cheapest and most risk-free financing. No long due diligence processes. Typically, there will not be enough funds available for all investment requirements from these sources alone.
Bank – Bank loans are generally hard to obtain without security and/or personal guarantee and a track record. Standard debt financing requires regular repayment instalments of interest and capital and can be a cash drain at early stage. Because there is no transfer of ownership, the whole principal with interest is payable by the end of the term irrespective of profits.
Equity financing – The transfer of ownership in your venture in return for investor finance. Since there are no debt servicing costs, vitally needed cash is retained for the growth of your business. However, if your business is successful, you’ll have relinquished future profits to investors. Equity investors can come in various sources; angel funding, venture capital firms, employees or even friends and family. Typically though, VC firms tend to look at mature businesses as opposed to start up or early stage businesses.
Convertible notes – An attractive form of lending for investors and borrowers. The principal starts off as short term debt which accrues interest that is payable upon maturity. Various triggers and clauses entitle the debt to convert into equity at a later stage.
3. Business Structure
Sole Trader: All profits and losses belong entirely to the proprietor. Only a basic form of accounting is required (one-sided entry). Very light on regulation and reporting requirements. The business is not separate from the proprietor leaving them personally liable in legal action.
Partnership: Two or more co-owners of an unincorporated business. The advantages include combining the skill sets and resources of the individuals. It is strongly recommended to draw up a partnership agreement reducing the risk of future disagreements. All partners are personally liable for the actions of the business. In the case of a Limited Liability Partnership (LLP), the law provides a degree of protection for the individual partners.
Company: The crucial advantage of incorporating is the legal protection or “corporate veil”. You also enjoy increased credibility in the eyes of customers and suppliers. Accounting and reporting requirements are more complex and regulated. Any profits and losses belong to the company. The owners extract earnings though either dividends or salaries or both, each with their own tax implications. The company pays tax on its residual profits besides that which the directors/shareholders tax paid on their own drawings.
Read our guide: Setting Up a UK Company-Essentials
4. Accounting System
It is essential for new enterprises to have a firm grip on their accounting systems from the start. Typically cash resources are limited in a start-up, so there is a tendency to drive resources at sales and IP development without sufficient investment into proper accounting systems and procedures. This embeds a negative culture into the business which can be difficult and expensive to put right later on. There are many outsourcing providers today who can assume complete responsibility for all your accounting requirements. Generally these providers will be integrating with your business using online (“cloud-based”) accounting solutions allowing you and the adviser to always be on the same “page”.
You might need to take an initial risk assessment of the business as a whole. An expert should be able to identify risks, advise and help implement systems and controls.
These are just some of the tax arrangements that you may wish to consider;
- Advice on the types of business structures
- Overseas aspects of tax (BEPS, EU VAT, transfer pricing, non-resident tax)
- Minimising tax on profit extraction
- PAYE taxes
- VAT registration
- Research and Development tax reliefs
- EIS/SEIS applications
Why not have all your needs looked after in one place? We carry out legal work for our clients through our sister firm Warlows Legal