How to Form a Business

Deciding on the most appropriate legal structure for your start up business is a critical step, as it could impact the degree of financial risk you are exposed to, the control you maintain over your business and the level of expected daily administration activities.Having made your decision to start a business, you must look into some legal requirements for the start up, such as the kind of ownership you are looking for, the name/title of the business organisation and your relationship with your partners.The Legal Form to Be AdoptedThe following are the main choices you can consider for the legal form that can be adopted for your business.If you are the sole proprietor of your business, you are self-employed and have no legal structure to adhere to.
In the case of a partnership, two or more business partners will work with you and will share the profits and losses equally.
There is also a limited company type, in which the business is a separate legal entity. In this, the business is distinct from its directors, shareholders and employees. Unlike the other two, in this type the business can sue or be sued separately from its owners.
A limited partnership liability could be said to be a mixture of a partnership and a limited company. In this type, the partners have a limited liability and the business can run even with the resignation or death of its partners.These days, other forms of business such as Co-operative Societies and Company Interest Societies have also become quite widespread. However, once you have adapted a certain legal form, it is still possible to change it although it will require a lot of investment in terms of time and finance. If your business has re-registered with VAT, you must inform your local VAT office within a 30 day time period. The other legal requirement for the change can be checked with your legal and accounting departments.Sole ProprietorshipA sole proprietorship is when the business is owned and managed by a single person. Many new start-ups prefer to have a sole proprietorship as it comes across as the best and most feasible option.The advantages of a sole proprietorship are as follows:Setting up the business is very simple and can be quickly done by just registering your business with the VAT, tax and other concerned authorities.
Your gross tax payments will be lower compared to other forms of business; this is, of course, if your earnings are not very high.
Your National Insurance will be low.
You can maintain simple, unaudited accounts.Later on, you can also form a limited company and merge your business with it by paying some stamp duty.The disadvantages of a sole proprietorship are:As a sole proprietor, your financial options are quite limited and you are entitled to fewer social security benefits.
Your assets are at a high risk, as you are personally responsible for all your debts.
Also, it will be difficult to sell or pass on your business to others.PartnershipA partnership form of business shares the same advantages and disadvantages as a sole proprietorship. However there are a few other aspects as well:While forming a partnership, you must first initially have an agreement drawn by a lawyer and agreed upon by all partners in order to avoid future disputes.In a partnership, each member is liable for the losses or debts suffered, even if caused by other members.There is more scope in a partnership to raise money as all the other partners could contribute financially as well.Limited CompanyThe advantages of a limited company have a propensity to increase as your business develops. The following are the advantages:In the case of a limited company, the liability of the members is restricted to the amount they have invested in the company by buying the shares. Personal liabilities may arise in rare circumstances of company fraud or security on company borrowing etc.
In terms of financial stability, it is easier to raise money or to sell the business when need arises since a limited company enjoys more credibility.
High earners can enjoy tax advantages by keeping their money in the business or pension payments.The few disadvantages are:Annual accounts are usually more complicated. Also a high turnover requires for regular audits. If your turnover climbs above £5.6 million, an independent audit is compulsory, costing you at least £2,000.
There are greater costs and obligations involved. Ceasing the business is a lengthy and expensive procedure.
The National Insurance payments are higher as you have to pay the directors’, employers’ and employees’ National Insurance contribution on salaries.A limited company must be registered at Companies House and thus setting up a limited company involves some red tape. Hence you can adapt one of these methods:You can ask your solicitor or accountant to buy you an off-the-shelf company and to provide advice on all the details (costs will be from £200 upwards).You could use a reputable company registration agent (cost will be around £60 – £200).You can also undertake the registration process yourself after seeking professional advice and guidance.Like the partnership agreement, in a limited company, a shareholders agreement helps all the people involved in a business discern their credibility and share in the business. The agreement covers the key issues regarding the business and possible ‘what if’ scenarios, such as:How much money the members will contribute in the initial investment and for what amount of reward in return?If need be, how will you raise money for the capital in the future?If in the future a member needs to take out extra money, how will that situation be dealt with?How will the dividends and salaries be distributed to the directors and shareholders?Who will take all these crucial decisions?How fast will the business expand and who is responsible for each business area?If the company disbands, will the members buy each other out or will the company be sold?Having a sound shareholders agreement before starting a limited company is essential as it minimises the risks and gives the members a clear idea of what rewards to expect in terms of financial investment.Limited Liability PartnershipsDespite the name, a limited liability partnership is not a partnership per se. It has the following features:It is a corporate body with its own legal identity and faculty; different from partnership in its organisational flexibility.Tax is charged for all profits, distributed or undistributed.Members can limit their liability in case of losses.Annual accounts must be prepared and filed in strict compliance with filing requirements and time limits.There must be a confidential members’ agreement which should be accepted by all.A limited liability partnership must be registered at a Companies House. Your accountant or solicitor can help you with the registration details.If the limited liability partnership is declared insolvent within two years, then the withdrawals may be clawed back.TipsKeep your company name short and simple if you’re a consumer-facing company.
Your company name should give you the freedom to expand into other activities.
Aim to secure the domain name for your trading name early on, irrespective if you are planning to sell over the internet or not. Your customers would rather be reassured to see a professional presence online, particularly if they are checking out your business.
Take professional advice on the best way to set up your business – don’t assume that you need to form a company.
Before going into any partnership, reflect on the likely business relationship and how it is going to work in practice
As circumstances change, consider if your business structure is still the right one for you. You don’t have to stick with the structure you chose when you started up.The full version of the “How to form a business” ebook, available from most book stores, helps you learn how to:Choose the right business legal form
Maintain working relationships
Select a name for your business

WARNING: Are You Making These Common Mistakes When Coaching A Business?

Are You Missing The Point?It has often been said that “profit is pointless and cash flow is King”. Do you know why?It is possible for a business to show a profit for a period of time, yet have negative cash flow. In fact, businesses that have profit (on paper) go under every single day. Negative cash flow, if sustained for an extended period of time, will eventually cause the company to run out of money and cease operations. Therefore, knowing the cash flow position is critical to staying afloat and knowing how to unlock more cash flow is imperative to effectively coach a business owner or senior executive.Are You Chasing The Wrong Target?You can have the most brilliant product or service but if the business runs out of cash, it won’t matter. Most businesses make the fatal mistake of thinking that they simply need more customers. If only they had more customers, they would have more sales and more profit…and they would be more successful.But is this true?Can businesses simply advertise their way into more sales and better results? No. In fact, advertising and discounting often have a negative impact on the bottom line and cash flow. Simply put – the initial instinct most coaches and business owners have is to focus on increasing sales. Employing this strategy – chasing customers and sales – is often the worst thing you can do for the business.The common assumption is that if you are running a business where the price you charge for your products is greater than what they cost, everything will be okay: you will be profitable and successful. Profit is good – don’t get me wrong – but it is simply not enough on its own. To be sustainable, the business must also have a healthy cash flow.If you are like most coaches and business owners, you never dreamed that the ability to understand how money flows in and out would be incredibly important. You thought: “That’s for the accountant or finance department to worry about. Sure, they may show me a few reports from time to time, but I don’t see the need to really understand what the numbers mean. If there was a problem, they would tell me, wouldn’t they?”You probably didn’t realise that all those numbers – the financial DNA of the business – can tell you a lot more than you thought. They can tell you why the business is not growing or is struggling to meet targets. They can reveal why there is less money in the bank account [again] than there was last month.The financial numbers ARE the story of the business. Numbers don’t lie. They are one of the few objective indicators of how a business is performing and where the problems are. Ironically, financials are the most overlooked area of business coaching with the majority of practitioners choosing to specialize in leadership, sales or marketing disciplines. Unfortunately, without a solid understanding of financials, it is impossible to coach effectively and produce predictable results.Regardless of any justifications you (or your clients) use to explain why the business is not performing – the economy, the shortage of ‘good’ staff, competition, supply chain issues etc. – the numbers tell the truth and can lead you to the solution. You just need to learn HOW to use them to your advantage.You need a bit of Financial Foreplay.Are You Avoiding The Numbers?When is the last time you took two hours out of your week to analyze the financial statements of a client or your own business? Can you honestly say that you know exactly where you (or they) are at and WHY? Do you sometimes wonder what the numbers are trying to tell you? Are you guilty of wasting money chasing new leads and sales instead of fixing the business and making it more profitable?Most coaches and business owners make the mistake of assuming they can improve the business by examining the Profit and Loss and Balance Sheet on a monthly basis. Unfortunately, these statements only tell part of the story. In fact, you cannot measure the cash flow position of a business by looking at the bank balance or examining the financial statements at a specific point in time.This is because most businesses use what’s called ‘accrual’ accounting. Rather than recording ‘money spent’, they record spending as ‘money spent plus money committed to be spent’. So if stock has been purchased on account, accrual accounting includes the value of that purchase from the point it is made – not from the point when the account is paid. Accrual accounting takes into account the amount of money that has been spent plus committed to be spent in the future. The same thing happens in reverse with earnings – it includes money received plus money expected to be received. When a sale is invoiced with 30 days to pay, the value of that invoice is included in accrual earnings even though the money won’t be received for at least another 30 days.Therefore, when accountants talk of ‘profit’, then, they usually mean ‘accrued profit’ as opposed to what we would call ‘real or cash profit’. Accrued profit is the expected real profit after ‘spending already committed to’, and ‘earnings expected to be received’, are taken into account along with real (cash) spending and real (cash) earnings. As a result, the profit showing on an Income (or Profit and Loss) statement is a more complicated and less useful representation of the current financial situation of a business. Net profit cannot be relied upon in isolation to gauge the financial health of a company.Stated another way, cash flow must be tracked over a period of time and can be measured by the following calculation:Net profit (year to date)
+/- changes in inventory
+/- changes in accounts receivable
+/- changes in accounts payable and GST and
+/- changes in fixed assets
Cash FlowChanges in these 4 items on the Balance Sheet have a significant impact on the cash flow and viability of a business. That is why getting inventory levels right, optimizing receivables and payables and investing only in assets that generate a return, is critical when coaching a business of any size. In fact, a coach can often have more tangible impact and influence on a business by focusing on these 4 areas than on directing effort towards gaining new customers and increasing sales. And oftentimes, it costs the business very little to implement highly effective strategies in these 4 areas.In practice, it is vital to have an eye on both real profit (cash flow position) as well as accrued profit. It is a common error to focus solely on accrued profit – an error which has the potential to send a business to the wall prematurely.Are You Sure It’s Profitable?Profitable growth should be the goal of any business. However, you cannot achieve profitable growth without first establishing that the business is in fact profitable. Attracting more leads or closing more sales may not be enough – the costs and efficiencies in a business change every day and this means that we must constantly monitor and measure results and take appropriate action. Focusing solely on customers and sales is a bit like spending 100% of your time practicing your tennis serve while neglecting to watch the scoreboard, analyze the strategy of competitors and practice your returns.Break-even is one of the most simple and powerful calculations that you can use yourself and with your clients each month to measure and enhance profitability. A company is said to “break-even” for a period (usually a month) when its sales revenue catches up to its costs. Specifically, accountants talk about break-even as the point where ‘fixed costs’ (rent, salaries, etc.) are matched by ‘gross profit margin’ (sales revenue minus COGS).Therefore, it follows that break-even with profit is the point in the month where the business covers all of the fixed and variable costs and starts making the desired profit target. Remember, if you and your clients are in business and not running a charity, the goal is profitable growth. In order to achieve profit, you MUST in fact plan to achieve it.Calculating break-even (and break-even with profit) each month and knowing specifically which day of the month the business breaks-even, allows management to make informed, strategic decisions about how to achieve growth that is profitable for the bottom line and enhances the cash flow position.Are You Ready To Get Results?Knowing where the financial pain is in a business will allow you to focus your time and resources where they will assist your client(s) to make the greatest impact on the bottom line. And if you are truly serious about being a successful business coach, and it is not just a hobby or a way to pass the time, you will find a way to fit a bit of Financial Foreplay into your day so that you can help others to whip their businesses into shape and start taking home more cash! It’s the quickest and most effective way to get your clients working ON not just IN their businesses.

What Is A Hardware Sales Agent?

Have you heard the term ‘hardware sales agent’?Remember the old days where you would walk to the hardware store just down on the road and the man who served you actually owned the store?Those days are now history as the hardware retail giants have been rolling out massive hardware warehouses all across the country. You can buy just about anything that is remotely connected to hardware in these massive warehouse stores. From light globes to terracotta plant pots and outdoor garden settings to mailboxes; they are all available in warehouse retail centres with some stores up to 50 aisles and more.With 1000’s of product lines to manage from 100’s of manufactures and suppliers, the retail giants have insisted on using sales management companies called hardware sales agents to provide fulfilment and management services. These services are generally tuned to the needs and requirements of the big retailers logistics systems.The manufacturer and supplier does not need to concern itself with store stock levels of it’s products in all stores around the country as this is maintained by the hardware sales agent. The agent has merchandise staff who call into the hardware retail stores all around the country on behalf of the manufacturer and or supplier. These merchandise staff are required to maintain stock levels of the specific suppliers products and also maintain the shelf presentation of these products as the retailers expect the merchandise staff to keep the shelves and aisles tidy, clean and presentable for the customer.The hardware sales agent can also assist the supplier to plan for the amount of stock required by the retailers by providing detailed reporting. Other critical services can include market share reporting and telemarketing. Some agents have highly skilled executives that are able to assist in increasing sales by developing extensive marketing plans and programs.Hardware sales agents can work on a commission basis of a fixed fee. This may depend on the level of sales activity or turnover so a fair outcome can be achieved for both the supplier and the agent.A big advantage to the hardware supplier is that many costs associated with getting the product onto the retail shelf like merchanise staff superannuation, motor vehicle expenses is being absorbed by the hardware sales agent and included in their fees.The hardware sales agent now plays a critical role in the massive hardware retail industry. A supplier cannot possibly service hundreds of hardware stores across the country without engaging the services of a hardware agent.