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Some pointers for start-up businesses

Please note that the information herein is of a general nature and you should not act or refrain from acting on it without professional advice on the specific facts of your case. No liability is accepted by the author or Sykes Anderson Perry Limited in respect of this article. Law is a complex subject and the above is a basic outline only and is intended only as a general guide. Nothing herein constitutes financial advice.

You are ready to leave your job and start up in business! Your adrenalin is pumping! Here are some practical points to bear in mind.

  • Check your employment contract does not enable your current employer to stop you from starting up. Many employment contracts have “restrictive covenants” which stop employees from taking customers, trading near to where they were previously employed, approaching staff members and suppliers. Be very careful here as you do not want to have to deal with an injunction in court from your ex-employer. The legal costs and time involved could cripple your business from the outset.

  • If you are taking premises get the lease checked carefully. Keep it flexible in case you need to “bale out” or expand. Leases of premises are a minefield. Make sure you go through it carefully with a solicitor. Be careful about your obligations to repair and redecorate when you leave. Avoid signing the lease in your own name, it is usually best to have it in the company’s name.

  • Make sure things are formalised with any partners or financial backers. Insist on arrangements being documented. It is very easy later on to fall out later with partners and backers especially over money. Have everything clearly set out on paper so they understand what their obligations and yours are. Shareholder agreements are a good idea.

  • Have trading terms and conditions you understand and which work for you. If you copy these off the internet go through them and make sure they work for your business. These terms are the basis of your trading activity and definitely worth getting them professionally checked.

  • Be clear about your intellectual property. This is often overlooked. In any dealings with employees or contractors make sure there is clear documentation as to who owns any intellectual property. If an employee develops some simple software you do not want him to say you cannot use it when he leaves because he owns it. The same applies to your website, trading name and logo.

  • Check what regulations you have to comply with. You do not want a competitor reporting you to a regulator who has power to close you down. Best to know your obligations and tick all the regulator’s boxes.

  • Have clear employment contracts and understand your obligations to employees. Be clear and realistic about whether someone is an employee or a free-lance contractor. If they look, talk and behave like an employee then they are employees! Make sure you know your obligations and costs here. It may be a good idea at the outset to outsource your Human Resources management. It takes up lots of time and hinders you developing the business.

  • Be careful what you promise people. Start-up entrepreneurs are often short of cash and ask for favours from people with promises about the business in the future. You may say that they will get a share in the company or such like without meaning it. This can easily lead to litigation if your business is successful. Best avoided.

  • Do not waste time with suppliers touting for your business. When you start up all and sundry will descend on you trying to sell at you. Do not get side tracked by too many meetings. Get going with the minimum possible and then review suppliers.

  • Be obsessive about your cash flow. Keep a spreadsheet with your business plan handy so you can see how you are doing financially. Try to get money up front from customers. Quickly drop any activity which is not profitable. Drop any customers who start to become difficult especially about paying you.

  • Have a worst case plan.

August 2018
David Anderson
Solicitor-Advocate and Chartered Tax Adviser