Be Your Own Boss: Overcoming Obstacles and Starting Your Business Journey
“To business that we love, we rise betime and go to’t with delight.” — William Shakespeare
Does this quote from Shakespeare describe your current job? If so, then you will know the benefits of having a job you love. If not, then perhaps it’s worth considering making some changes. While this sounds easy, the reality is that the prospect of becoming your own boss and starting your own business can be frightening to say the least. While you may have become an expert in your field, starting out on your own is a different kettle of fish and needs some new skills. Even the best ideas can unfortunately fail if not executed correctly. But it is not all bad news. Many startups achieve successful results and Venture Capitalists are always on the lookout for a new idea to invest in. The reason many startups fail is not due to the idea being bad, but just that the operations didn’t run smoothly. While the exciting new things get the attention they rightly deserve, the behind the scenes functions can get neglected. In this blog we attempt to analyse how to overcome such obstacles to turn your dream into a reality.
Obstacles to Growth
Cashflow
The key issue for a startup is cash. Most employed people are unlikely to have accumulated a cash pile to support a business while it gets up and running. The question is, where to get these funds from? Option 1: The bank. Bank finance is often the first choice to obtain some operating funds. The issue is the rate of interest and the level of funding they are willing to lend. If you approach the bank you use personally then there’s a chance that they will be more willing to lend. This may give you what you need to get off of the ground but could be an expensive long term solution. Outside Investors are another option. These can range form a wealthy individual with spare cash that just wants a share of the profits, to a sophisticated Private Equity house that wants a seat at the table and to have a hand in running the company. Funding groups and crowd funders could also be worth considering. You need to make sure you read the fine print in any contracts drawn up to ensure you understand fully what the investor wants from their investment. The best time to approach these groups is once you have a product that is ready to be launched, something that the investor can see and understand.
Overspending
Once you have some funds, it’s important to grasp control of your spending. It can be tempting to go to extremes, either spending too much or spending too little. The obvious result of overspending is that the cash doesn’t last long enough to finish development. Underspending can mean that development is too slow or is of poor quality. There are benefits to making a realistic assessment of costs. “But I don’t know much it will cost” some say, but a rough guess is better than “flying by the seat of your pants”. Once you have set these costs then you can easily set up a system to track the costs against your budget.
Wrong Legal Entity
There a pros and cons to each form of legal entity for businesses in the UK. Here are the options:
Sole trader: An individual can start trading on their own and this is called sole trader business. The trader is personally liable for debts incurred by this business. UK tax liabilities can be confusing due to the way they are calculated so the trader needs to plan ahead and ensure they understand the tax payment amounts and deadlines.
Partnership: If two or more individuals want to team up and work on the business together, then a partnership can be formed. This is not actually a legal entity, and so each partner is taxed on their share of the profits. Other than that, the arrangement is the same as a sole trader. As they say, two heads are better than one, so many partnerships are successful. If there is a disagreement between the partners and one wants to leave then there can be difficulties as there is no defined mechanism to leave. Some partnerships draw up a partnership agreement which details the terms under which the partnership will operate and can include provisions for termination of the partnership.
Limited Company: A private limited company (Ltd) is a legal entity in its own right. This means it has a home (registered office), it has directors and it has owners (shareholders). The directors have responsibility to run the company according to UK law, but the shareholders have the ultimate control because they own the company. A major advantage of the limited company is that the company assumes liabilities rather than the individuals involved. The disadvantages are that the UK law surrounding UK companies adds a layer of administration that the other two forms avoid. This includes the filing of an annual return and accounts, but these are usually handled by your accountant.
A limited company can be created for a single person or for a group of individuals. The individual that holds the largest number of shares has control of the business. If an individual shareholder wants to sell some of his or her shares then they can easily sell them to another individual for a price they agree between themselves. There are some helpful tax provisions to selling shares in this way such as Capital Gains Tax Entrepreneurs Relief which means that you only pay tax at 10% on the gain you make. There are some additional complications that your accountant can advise on. Other advantages are that the limited company pays tax at 20% of its profits which is lower than the rate that a sole trader or partnership pays.
There are pros and cons to the various businesses so it is best to speak to an expert before launching into an arrangement that you can’t easily get out of.
You Can Do It: The Rewards of Becoming Your Own Boss
Becoming your own boss can reap huge financial and non-financial rewards. You can gain enormous satisfaction from building something, being a “founder” and enjoying the freedom to do what you want. While we appreciate that the prospect of starting their own business isn’t everyone’s “cup of tea”, we’ve attempted to demonstrate that there are ways of overcoming most obstacles. Starting a business is undoubtedly hard work but with persistence it can be done as countless entrepreneurs will tell you. We enjoy working with creators, dreamers and doers so if there’s anything we can do to make this easier, give us a call.
