Dynamic Business

Starting a business can bring feelings of both adrenalin and fear. There are some important legal aspects that anyone starting up a new business should consider to ensure a successful start up.

After seven years of working for somebody else, I recently established my own law firm with a partner. As a business lawyer, I assist business owners every day in developing or starting up their businesses. I have also started a number of businesses of my own. The following are guidelines that I believe anyone starting, or thinking about buying a business, should consider. 

Do the research
People start a business for a variety of reasons. These may include trying to find an alternative to paid employment, a desire to earn more money or be more independent. The first step is to research the market. Background research essentially includes knowing all about your potential and existing customers and the actual industry that you operate in. It is imperative that you assess who your competitors are, their strengths and weaknesses, and what is it that you are going to offer to make your customers choose you.

Gather as much information as possible from a variety of sources to help you understand your industry. Identify any economic and industry trends, seasonable fluctuations and any innovative products that will put you ahead of the others. My experience has told me that marketing is essential to any business and should be part of your ongoing business plan.

Developing a business plan
On a practical note, it is essential that pen is put to paper. Drawing up a business plan will enable you to review the feasibility of your business idea and acts as a blueprint, mapping out the future direction for your business. Key areas that should be included in your business plan are:

• Purpose and objectives of your business
• Market research
• Marketing strategy
• Operational aspects, including the structure of your business, location, employees etc.
• Financial plan.

The financial plan will need to be a realistic proposal of the revenue required to start the business and what are the strategies for raising revenue. This plan should also include the projected profit and loss over at least a 12-month timeframe and identify what your business’ break-even point is, at which point the level of production covers all expenditure.  

Choosing the right business structure
Each having their own advantages and disadvantages, the most common business structures include:

• Sole trader: Exactly what the name suggests. All the assets and liabilities of the business belong to you, the owner.
• Partnership: An association of individuals or entities for the purpose of carrying on a business venture or activity with a view to profit. A partnership is not a separate legal entity so all assets of the partnership are owned by the partners jointly.
• Company: A company is a separate legal entity and capable of holding assets in its own name.
In choosing the right structure for your business, there are a number of important factors that you will need to consider.

Taxation and other costs
The tax rate varies, depending on the type of structure that you choose. Tax liability is incurred on profits of the business, land tax, payroll tax and other forms of taxes and levies. Generally, corporate structures are more expensive to set up and run than a sole trader or a partnership.

For sole traders, the income tax rate for the business is the same as your personal tax rate, which allows for the tax advantage of tax losses being offset against any other income you might have (for example, negative gearing).

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