You’ve established that there is a need for your product or service and have used the marketing mix to develop a positioning strategy. Now that your start up business idea is concrete and ready to go, you need to understand the legalities. Abiding by legislations and regulations ensures that you operate within the law.
Legal Structures and Regulations Relevant to a Start Up
Choosing the right legal structure for your start up is vital because it affects several important financial aspects:
- Amount of tax paid
- How much National Insurance you pay
- Authorities that you must notify about your business
- Records and accounts that you have to keep
- Ways that your business start up can raise money
- Financial liability
- How management decisions are made
Choosing the legal structure is one of the most important business decisions that you will make during your planning. There are a number of options available to you. In order to choose you should list the advantages and disadvantages of each type of legal structure in relation to your business.
Types of legal structure:
There two most common types of legal structure for a business are:
Sole Trader/Proprietorship: Sole traders are a common form of structuring for a start up business as only one person owns and controls it. Firms that are sole traders are small, easy to set up and only require a small initial investment. It’s easier to keep control over a proprietorship as the owner has a hands-on approach to running the business. This allows the owner to make decisions without consulting others.
As a sole trader, there is no one else to share responsibility with making the owner solely financially liable. It may be necessary to work long hours and it can be difficult to take holidays when you are the only person in control.
Partnership: Partnerships are owned by two or more people. Partnerships allow for specialisation, where each partner focuses on their strengths to make the business as successful as possible. The partners in a business can contribute different amounts of capital initially and profits and shares can be split to reflect this. Responsibility in the business is also split, relieving the pressure on one person and allowing for business decisions to be discussed.
Although responsibilities, profits, shares and losses are split between partners, disputes can arise. Draw up a ‘Deed of Partnership’ when the partnership is formed, outlining how assets and liabilities are split. Richard Harroch discusses this further in his article Forbes, ’10 Big Legal Mistakes Made By Startups’.
Before starting your business, there are several local regulations that you must abide by to ensure that your start up operates within the law.
Regulatory requirements will differ depending on the type of business that you’re opening. Most businesses need to obtain a licence or permit of some kind. Specific organisations needing more specialist licences from local health authorities, building inspectors and police and fire departments.
Businesses that will need specialist permits include:
- Those that prepare meat products
- Businesses selling alcohol and tobacco
- Businesses selling firearms
- Those giving investment advice
- Radio and television stations
- Telephone companies
- Businesses producing drugs and biological products
Legislations control the way in which a business operates, they’re imposed by the UK and the European Union courts or the Government.
There are three main areas of legislation that affect businesses, they are:
- Employment law
- Consumer protection
- Competition law
Employment law aims to protect the health, safety and rights of employees whilst in the workplace.
Health and Safety
Health and safety legislations help you to prevent costly accidents within the workplace. As a business owner, you are responsible for the health and safety of:
- Your employees
- Visitors to your premises
- People near to your business
- Anyone that is affected by your products or services
As an employer, you must provide your employees with:
- Restrooms – toilets, hand basins, soap and a means to dry hands
- Fresh drinking water
- Sufficient space
- Good lighting
- Good ventilation
- Acceptable temperatures
- A rest area
- Changing areas (where specialist clothing is needed)
Carry out risk assessments every six months and record the results if you employ 5 or more staff members. There must always be a health and safety representative on site along with a first aid kit and accident book. You should Write a clear plan for how the business intends to deal with and manage any serious accidents in the workplace.
You are also responsible for any environmental damage that you may cause including waste, noise, smoke, fumes and gases, dust, light pollution and an accumulation of rubbish.
Employment legislation is designed to protect the rights of the employee. It is a crucial part of a business for anyone that employs even a single staff member. These laws are costly to employers because you have to spend money on training their staff and ensuring that salaries are fair. They can, however, make employees feel safer in their role making them more motivated and loyal to your business.
Employment legislation covers key aspects including:
- Working conditions
- Treatment of employees
- Pay and working hours
- Sickness and absence
- Unfair dismissal
- Employee rights
More specific areas within the above-mentioned areas including bullying and harassment within the workplace, equal pay, maternity/paternity rights, and sexual, racial and disability discrimination.
Customer protection legislations are in place to protect customers against unfair selling practices. Included in these legislations are the Sale and Supply of Goods Act 1994 and the Trade Descriptions Act.
Consumer protection also imposes extra costs on a business. You’ll have to spend extra money to ensure that you comply with the laws. Non-compliance risks incurring fines or being put out of business by the courts. Despite the extra expenditure, having your customer’s best interests in mind encourages them to stay loyal to your brand. This is due to them knowing that they will be treated fairly.
Competition law aims to ensure that there is a fair competition between companies within each industry. Great competition leads to lower prices, better quality products and a wider product range.
Requirements and Resources
What do you need to start your business?
Launching a start up needs careful planning and accounting. You should never rely on your customers to keep the business afloat.
Depending on the type of business that you are launching, you’ll need to budget for certain resources that your business will be unable to function without. You’ll need to consider:
- How big a premises will you need?
- Will you buy your premises or rent it?
- Will you need extra storage space for stock at another location?
- How much stock or raw materials will you need to start with?
- Have you identified your initial suppliers?
- How will you furnish your premises?
- Do you need I.T equipment?
- How will you market your business?
When planning the initial cost of your start up, take into consideration fixed and variable costs. Should you buy in bulk to get a better deal or buy only what you need? Are there any areas where you will need to use external companies, such as accountants, I.T support and marketing or will you have the staff to carry out these operations in-house?
What Human Resources will your Start Up Need?
Human Resources (HR) are crucial to building an effective team within an organisation. HR covers recruitment, training, performance appraisals, motivation and workplace communication, everything that you need for an efficient, functioning team of employees within your business. Helen Sherlock of Startups.co.uk lists the 5 key questions that all very small businesses should ask to make sure that you don’t miss anything when planning your Human Resources.
Initially, you’ll need to decide whether HR will be carried out in-house or whether you will use an external company to help you out.
What vacancies exist within your company and what is included within these roles? Writing this down clearly ensures that you hire the best possible candidates. You shouldn’t take on any employees until you are certain that your business can support them financially. Hiring staff is about more than just their monthly salary. You’ll need to consider a pension plan and other policies including sick pay and annual leave.
Moving forward, will your staff need continuous training after their induction? Will you carry out training in house or is it a specialism that will need to be outsourced? On a day to day basis, who will staff go to if they have a human resources related problem? There should be someone within the business that they can trust to address any problems that may arise.
HR for Start Ups
As a start up business, you have the freedom to create whatever environment you want within your organisation. An innovative company culture is attractive to employees who come from a very strict, corporate environment. A relaxed, open office can often encourage people to be more productive as they don’t feel the constant pressures to perform that can be draining on motivation.
Creating your company culture from scratch enables you to be inventive with your benefits package. Think outside the box, ask employees what they would like to receive and look at what other companies are offering.
You’ll need a company handbook to enclose all of your HR information for employees to access and reference should they need. This handbook is not set in stone, you can update and amend it when needed.
Launching your Start Up
The Importance of Stakeholders to a Start Up
We previously discussed stakeholders and their importance to a start up business in element 1.
Stakeholder buy-in is the process of involving your stakeholders in decision making and is a good way of gaining their trust and respect. Forging relationships with stakeholders is vital when you’re launching a new business. They provide invaluable advice and often bring a wealth of experience to the table.
To form strong, lasting relationships with your stakeholders you must:
- Be open and honest – tell stakeholders exactly what is going on
- Prove that you know what you’re doing – an unorganised and careless entrepreneur isn’t going to earn and retain the respect of stakeholders
- Have the courage to ask for help if you need it – they have a wealth of invaluable knowledge
- Let them be involved – consulting stakeholders before making any big decisions gives them piece of mind making them less likely to disagree
- Be proactive – you won’t get results if you don’t work hard for the,
- Take responsibility for your actions – all new business owners will make mistakes, stakeholders will have more respect for you if you admit where you have gone wrong, learn from your mistakes and move on
- Put yourself in their shoes – stakeholders have often invested a large chunk of money into your business, they have a right to be concerned about their investment, keep them involved and informed
- Maintain a positive mental attitude – why should other people believe in your business if you don’t?
Promoting and Marketing your Start Up
You’ll need to come up with a marketing strategy for your new business to create a buzz and spread brand awareness. There are several different ways of promoting your start up depending on your budget including both digital and traditional methods.
You’ll need to decide whether you are going to do your marketing in-house or whether you will outsource to an external agency. While keeping your marketing in-house ensures that you have full control and can keep costs down, outsourcing to professional marketers will often achieve better results.
Social media is an easy and relatively cheap way of getting the message about your brand out to a lot of relevant people through paid adverts. Carefully choose the target audience for your adverts and you won’t waste money on promoting your brand to an audience that isn’t interested.
You don’t, however, need to pay for advertising to see results from social media, there are currently over 40million small businesses active on Facebook but only 2million of them are paying to advertise.
Social media is a brilliant marketing tool for start up businesses for a whole host of other reasons:
- There are 2.3billion active social media users in the world
- Can pick specific social media sites that best suit your business/target market
- Drive people to your website
- Build relationships with customers by interacting through social media channels
- Use social media as a customer service tool and respond quickly to problems and queries
- Keep up with trending topics
- Keep an eye on your competition
Vouchers and Discount Codes
Vouchers, discount codes and special offers are a great way of creating a buzz around your start up business. Not many people will be aware of your brand and so, offering free samples or discounted rates can help them to test out your brand instead of purchasing from your competitors.
Free samples and introductory prices can be an effective way to convince people to try a product or service that do not yet trust enough to purchase at full price. A customer having a positive experience with your brand early on encourages them to shop with you again.
Vouchers and discount codes are important for your business, no matter what stage it is at. Research by Kayla Matthews of ConvinceandConvert.com found that 75% of consumers check their emails for discount codes before making a purchase. Your email marketing could lead to a customer choosing you instead of your competitors.
Offering discounts on shipping or even including it for free can also have an impact on customers spending habits. In the same article, Matthews states that consumers are 4 to 5 times more likely to make a purchase if you offer free postage.
“Public relations (PR) is the way organisations, companies and individuals communicate with the public and media”
PR can be carried out in-house or outsourced to a specialist agency. It plays a crucial role in the reputation management of any company. For start up businesses, there are some PR activities that are effective yet inexpensive:
- Speaking at events that relate to your product/service/industry – this creates and increases brand awareness and ensures that you stand out as a thought leader within your field
- Attend networking events and create brand awareness amongst other business owners within your industry
- Reach out to influencers in your industry – guest post on their blogs and websites to raise brand awareness
- Offer sample products to customers in return for reviews and social media engagements
If you’re setting up your own business and are wanting to find out more about the ways that you can promote your new venture our ABE Level 3 Certificate in Business Start-up will tell you everything you need to know.
You’re over half way through the process of setting up your own business. You are now aware of the legalities and regulations affecting your business and, as a result can be certain that your venture will operate within the law. You’ve identified the stock, people and capital needed to get your business up and running and have a detailed marketing strategy to promote your brand.
The Next Step…
The next stage is to plan your budget and make financial forecasts for your business. You’ll learn how to produce financial records and statements that can be used to generate the initial funding that you need to get your business up and running!