Types of Business
Many people think you have go straight into forming a limited company to be a “proper” business. Many think that it will give them credibility but there are a few limited companies which are not altogether trustworthy. They start, change names or change directors at the drop of a hat. So we give you all the options below.
Most people start by being a Sole Trader if their business is relatively small and simply keep their business life separate by having another (business) bank account so they can keep their tax records organised easily. In reality you don’t even have to do that, though it certainly helps!
Partnerships are basically two or more sole traders working together but be warned even the best of friends can fall out and more people fall out over money than anything else.
Everyone has heard of Limited Companies. (Haven’t they? It is worth considering starting one if the company consists of more money than you can afford to lose if things go wrong. You do have to register with Companies House and file your Company accounts online so everyone can see them. The Limited bit normally means that you personally have a liability limited to £1 if the company goes pear shaped. Many people start as a sole trader and then advance to a Limited Company as they get bigger especially if they have started to employ other staff.
Limited Liability Partnerships
Limited Liability Partnerships are basically partnerships as above but with the benefit of the limited liability bit in a limited company. They are often used for firms of solicitors or other professionals.
Public Limited Companies are companies in the UK which trade shares on the London Stock Exchange. They are normally fairly large established companies but not always. Fairly large companies often “float” on the Stock Exchange if they want to expand. The issue of shares will give (hopefully) a large injection of cash to increase the size or productivity of the company. You can also go from a PLC back down to a Limited Company if you want to take back more control although this is relatively rare.
Which way should you go?
Many people start small as a sole trader and then move on to a limited Company and then a PLC but you could downsize from one to another as there are many reasons to influence your decision and it needs to be right for you and your company. Customers will be more impressed with your product or service combined with efficiency and value for money than ever they will be about grandiose titles or business models.
Do you need a business advisor? Maybe. It depends on what business and what size it is that you are going to undertake. There is however lots of free advice available so it makes sense to learn from other people’s mistakes before you start. Just Google “business advice/advisors” and the area you live in to see what’s available.
Will a bank help? They will all suggest they will but in reality banks want to make sure that they don’t lose any money and have all been very careful about the risks they take since the global crash at the beginning of the Twenty First Century. Don’t forget also that running a business means making a profit. So if you get a business loan you will have to pay it back with interest which could possibly put you into debt before you’ve even started so the best advice is only to get a loan when you are secure and have a specific purpose in mind to make your business grow. No buying fancy cars just to look professional because it won’t fool your bottom line.