When it comes to setting up a company, there are no hard and fast rules about which type of business fits with which trading entity, but it is important that you understand each structure in order to make the right choice for your business.

Sole trader
Acting as a Sole Trader involves one person who must register with HMRC in order to pay income tax and Nation Insurance Contributions.

Sole Traders avoid the paperwork and cost associated with registering with Companies House and are not answerable to partners or shareholders, which some argue makes it easier to make quick decisions and stay competitive. However, they are personally liable for any business debts incurred as well as any legal action taken as a result of their actions in the course of their business.

While National Insurance Contributions are typically lower than they would be on a PAYE scheme, Sole Traders are liable to pay income tax on any salary paid and fixed Class 2 National Insurance plus Class 4 National Insurance on all profits, which can be more costly than paying corporation tax on profits within a Limited company. Further, as the business does not exist as a separate entity, it is difficult to sell on, and difficult to win investors.

Partnership
A Partnership is made up of between two and twenty people, where all partners are 'jointly and severally' liable, meaning that the liability is shared equally between partners. Again, each partner is liable to pay income tax Class 2 and Class 4 National Insurance on their share of the profits.

Partnerships don't have to register with Companies House, so there is less paperwork and accountancy costs than a Limited company. They are considered suitable for individuals who need to retain a degree of independence in the professional capacity, such as accountants and solicitors.

There is no legal requirement for partners to draw up a formal agreement as Partnerships are automatically governed by the Partnership Act 1890. However, it is advisable to draw up a Partnership deed to avoid default requirements such as the obligation to wind up a Partnership if a partner leaves the business.

Partnerships don't have to register with Companies House, so there is less paperwork and accountancy costs than a Limited company

Aside from risks associated with debt and legal action and the non-preferential treatment by suppliers and banks, as with Sole Traders, another weakness of the Partnership structure is the problems that can arise if a partner wishes to leave and take their assets. Again, however, a formal agreement can help protect against this.

Limited Liability Partnership
The Limited Liability Partnership (LLP) is seen by some as offering the ‘best of both worlds' as it gives the flexibility, in organisational terms, of a Partnership, but removes liability from the individual by creating a company which acts as a legal entities that is separate the partners within it. As such, the company can own property, enter into contracts and indeed accept liability for debts and legal action, with the individual partners' liability reduced to personal investments, plus any finance raised using personal guarantees

Creating an LLP involves registration with Companies House and a commitment to publicly file annual returns, which means more paperwork and higher accountancy fees than the above structures. However, this also allows the business to ‘claim' its name, which can protect the brand to an extent.

LLPs are treated as Partnerships for tax purposes and are governed by LLP Act 2000 and LLP Regulations 2001 which makes it more flexible in terms of legal requirements than a Limited company, however it is advisable to have a written agreement in place between partners to avoid costly misunderstandings.

Limited
Limited companies require directors to operate within defined roles, with ownership defined by shareholdings. In this way, there is less danger of confusion or disputes than with an LLP or Partnership. As with LLPs, Limited companies are required to register with Companies House and exist as separate entities from shareholders, making the reduction in liability one of the most attractive features of this trading entity, despite the added paperwork and accountancy costs.

The Limited structure is the only structure option which allows owners to raise capital by selling shares. In addition, Limited companies are generally the most likely of the four structures to secure investment from banks as the level of regulation imposed on the entity means it is considered a safer investment.

Creating a Limited company can also facilitate tax savings. For example, a Director could draw a salary below the threshold for 40% income tax, pay just 21% corporation tax on the profits (providing the profits do not exceed £300,000) and then draw the profits as a dividend.

It is clear then, that each structure presents its own set of pros and cons, so your decision should be made after careful consideration of each element of your business, including the number of people involved, the level of profit you are likely to make, and who you intend to trade with. Of course, if you are in any doubt, it is wise to seek third-party advice before making a decision.

Anita Brook is director of chartered accountancy firm Accounts Assist. For more information visit www.accountsassist.co.uk

It's a tough economic climate at the moment for new and and growing businesses. Online business support service VentureNavigator worked with Doug Richard, a successful entrepreneur with 20 years experience in both in the US and the UK, to produce 6 rules for surviving in a downturn.

1. Cash is king
Manage cash - if you're out of cash and out of credit, you're out of business. You need a good 13 week cash forecast, not generated from the income statement but from a detailed understanding of receipts and disbursements. Monitor trends in your cash flow to keep on top of any sticky situations.

2. Collect with passion
On a related point, manage receivables aggressively. Businesses are holding on to their cash longer than before, resulting in late payments. These late payments are having a ripple effect through the SME community. Receivables will trend up, and some of your customers may become troubled as well. Don't keep extending credit.

3. Don't depend on anyone
Keep a close eye on your suppliers, and have alternatives. In a downturn, some of your suppliers may become troubled as well, and you need to think about alternative sources for your critical inputs.

Keep focus on core markets and spend money solely in those areas here

4. You can always cut more
You can forecast expenses, you can't forecast revenue. Look for places to cut expenses. When times are good, companies tend to add staff and expenses that are nice to have, but not critical. It's time to take a fresh look at those.

Keep focus on core markets and spend money solely in those areas. Avoid putting cash and time into areas that have proven less profitable. Many companies begin by cutting advertising and/or marketing budgets. This can be a mistake. Instead of cutting these budgets, review the methods you are using. Are there more cost effective routes to market? Does your current strategy bring in the right results? If not, rework your efforts to deliver the best possible results.

5. Talk to your lender
If you have debt financing, stay in communication with your creditors. Don't wait until it's too late before speaking with your lender. When you are already in a crisis and haven't provided any warnings, situations may prove tricky. Maintain constant communication. It will help you should you ever need to renegotiate terms.

6. Business survives on the bottom line
Don't worry about growing revenue. Worry about growing profit. Make sure you understand what drives profitability in your business. To spur demand, you may have to get creative with pricing and product offerings, and you don't want to put something out there that is actually unprofitable.

Consider diversifying to make the most of potential opportunities. Others' weaknesses and instability could work to your advantage. You never know - you may identify a new market.

Doug Richard wrote these tips for VentureNavigator, an online business support service designed to help start-ups and small businesses improve their chances of success. For more information visit www.venturenavigator.co.uk

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Change seems to be the defining feature of the global economy right now. Britain's recession has become official and news of struggling firms across the globe is continuing to appear. These are difficult times for SMEs and anyone considering starting a new business, but a positive approach is the only way forward.

To embrace change you must understand it. Make it your business to know what is happening in your sector and your markets. What new trends are appearing and how can you capitalise on them? What is driving consumer decisions? Full scale market research may be unfeasibly expensive but talking to your customers costs nothing. In the same vein speak to associates to share information and strategies. And listen to your staff - effective decisions can only be made if you know exactly what the different elements of your business are experiencing.

Succeeding in a turbulent climate also means having the confidence to make bold decisions. It helps to realise that business is always a risk and calculated risks lie behind all of business' greatest achievements.

Collaborate
As every networking junkie knows small firms are stronger together. Now is the time to build on existing alliances and start new ones with like-minded organisations. The ‘like-minded' bit is crucial - strength comes from joining forces with people with the same ethos so that you can easily share contacts, knowledge and even resources.

Succeeding in a turbulent climate also means having the confidence to make bold decisions

The most valuable partners are often those who target the same market in a similar but non-competing field. Think marketing firms and web designers, restaurants and grocers, accountants and solicitors.

Mutually beneficial partnerships work differently depending on your sector but often deliver some form of joint referrals. These can be boosted with an attractive referral scheme giving partners cause for sending business your way and vice versa. If you've already got one how many of your partners are delivering good referrals at the moment? Could you do more to motivate your partners, or do you need to find better partners that will pull their weight?

Working with competitors can also succeed in the right circumstances. For a big pitch there can be strength in numbers and this is especially true when SMEs are competing with blue chips.

Partnerships can also extend beyond traditional business borders. Could you benefit from working closer with the public sector, NGOs, charities or social enterprises? Different sectors are feeling the impact of economic changes in different ways so you may be able to assist each other in your areas of weakness. For example in the West Midlands an innovative ICT cluster has been created featuring three quarters of the region's universities and is fostering links between academia and small firms. This collaboration has helped to drive forward SMEs in the region, in turn boosting the region's profile and its attractiveness for business investment.

Innovate to capture new market opportunities
If you look at the growth and prosperity that followed the Industrial Revolution it is clear that emerging economies such as China and India will eclipse the established economies in the west within a matter of a few years unless SMEs in this country continue to innovate.

As in the 19th century new technology and improved working methods saw British enterprise conquer, so businesses must continue to innovate to maintain a prosperous and dynamic economy. But how can this be achieved during a recession?

Successful innovation is about listening to customers, spotting new trends and delivering value. Innovations that tap into real market desires and deliver value will continue to be profitable even in harsh market conditions.

http://www.newbusiness.co.uk

Ensuring that you know about your sector is vital to a businesses' success, and online marketing can be a quick and inexpensive method of gaining this information

The current economic climate is having an impact on businesses large and small, with some companie suffering while others are discovering new opportunities. Many people who have lost their jobs are either thinking about launching their own business, or have already done so. What is clear is that the uncertainty means that researching a business' market has never been more important.

Market research is an important tool for any person who wants to launch a business and for small firms looking to grow their business by launching new products or services. Market research involves scientifically-led studies to collect necessary market information, enabling entrepreneurs to make the right commercial decisions.

It's an essential stage in the business start-up process but many entrepreneurs don't do it - not least because of the supposed cost. Market research determines the feasibility of a project and it's a way to adapt a business' strategy

It's important to carry out market research in order to:

• confirm an idea
• make a project credible
• professionalize the setting-up approach
• convince financial partners and others

Online research has revolutionised market research, providing both opportunities and challenges to researchers and users of research. Online market

Market research is an important tool for any person who wants to launch a business and for small firms looking to grow their business

research has grown rapidly in recent years as a key form of data collection for primary research activities. Online market research offers both large and small research focused organisations the chance to eliminate the costs involved with face-to-face, postal and telephone data collection. Organisations have begun to realise also the speed and data reliability offered by the internet.

Online market research has grown rapidly in recent years as a key form of data collection for primary research activities. Online market research offers both large and small research focussed organisations the chance to eliminate the costs involved with face-to-face, postal and telephone data collection. Organisations have begun to realise also the speed and data reliability offered by the internet.

There are a number of benefits to commissioning online research, including:

• Easier targeting of respondents across numerous segmentation variables. Provides access to a precise and qualitative panel which ensures to gather reliable data on sensitive issues.

• Multi-country projects no longer need to be an obstacle to research - worldwide research can be conducted at the click of a button.

• An inexpensive way to conduct large research projects - it is possible to get hundreds of responses for less than a thousand pound.

• Most large research suppliers have access panels which provide an easily accessible, reliable respondent base which can respond promptly to online questionnaires.

• It allows for a very rapid turnaround - research can be undertaken and results received within a few days as opposed to several weeks involved with face-to-face and postal data collection methods.

• Use video, images, audio for richer questionnaire environments.

For a business which needs to gain a general view from a large cross-section of the population, and in as short a time as possible, there is no doubt that online research offers a viable benefit.

Marketest is a leading online market research company for business start-ups. They primarily work for start-up entrepreneurs and companies launching a new product or service. For more information visit www.marketest.co.uk

Business investment in Britain declined 10.4% in the second quarter of the year compared to the first three months - the steepest drop since 1985, according to data released by the Office for National Statistics (ONS).

The amount spent by businesses on a range of investments, from new computers to building works, fell to £29.8bn in the second quarter of the year and 18.4% lower than the same period last year.

Companies have had to cut back on spending to cope with a sharp downturn in demand and difficulties in accessing funds.

http://www.newbusiness.co.uk

The working week for many workers is being extended to 55 hours a week because of the rise in remote working through mobile phones and other devices, according to research by employment law firm Peninsula.

The increased availability of mobile devices that allow staff to work while away from the office has assisted small business owners by making their workforce more flexible, but there is a danger that employees never switch off completely from work.

"Employees should be encouraged to take appropriate rest breaks if they do choose to continue working out of hours. Having a well rested employee with a good work/life balance is a lot more useful than a tired employee that put one too many hours in the night before," said managing director of Peninsula Peter Bone.

http://www.newbusiness.co.uk

When starting a business, our first thought is often: Can I make money with this business?

I previously wrote about how to evaluate a business idea in the article Evaluating Your Business Idea and Product . The article lists some helpful questions you need to ask yourself when thinking of what products or services to offer.

But how can you quickly tell if there’s a demand for your business idea? The first step is simple: OBSERVE.

Take time out and go to the mall, or a park where a lot of people congregate. And observe the whats and the hows of their activities.

In one mall visit for example, two things stood out for me. One, almost everyone has a cellphone (or smartphone) and many can be seen talking on the phone, texting or checking their emails. Two, there’s a lot of baby boomers and older people walking about, shopping or just hanging out in the mall. This observation tells me that there’s a huge mobile market, and that catering to baby boomers can assure business owners of a sizeable customer base.

Let’s use as an example a question asked by someone from Yahoo Answers. He asked if he can make a lot of money tinting windows, both of houses and cars.

I advised him to go out and observe. Walk around the neighborhood, or drive to nearby areas, and count how many windows of homes have been tinted. Or sit down in a bench by the busy street and count the number of cars that drive past with tinted windows.

In my walks around my neighborhood, for example, rare are the houses with tinted windows and those I’ve seen are for their sunrooms. This tells me either two things: there’s a big market for a window tinting business; or that there is no demand for such a service.

The second step is to ASK.

He needs to talk to the neighbors and ask them why their windows are not tinted. Have they ever considered tinting their windows? Do they know the benefits of tinting the windows? If the answer is because they think that tinting windows is not important or necessary, then he’ll have a hard time getting customers for his new business.

While it is good to hire a market research company and scientifically poll thousands of respondents, home business owners can do well by simply keeping their eyes and ears on their target market.

http://www.powerhomebiz.com

The thought of starting a business can be daunting and frightening - even for those who eventually succeed. Self-doubt, insecurities, and fear often serve as stumbling blocks. They feel that they are not good enough, not creative enough, or not smart enough to run a business.




More so if they do not know what business to start.

Many would-be entrepreneurs are at a loss as to what kind of business to start. They daydream of becoming their own boss and controlling their financial destiny, but don't know what business will get them there.

Their greatest fear is that their business ideas may not be brilliant or acceptable enough. They are afraid that their products and services will not have enough market to sustain the business. They are afraid that chasing after their dream of becoming their own boss would only lead to failure.

Is this fear justified?

Of course! But then again, there are many good ideas out there. Believe it or not, clever product and service are dime a dozen. Most of us have at least one good idea, but these ideas often never get implemented.

Studies in fact show that lack of good idea is not the primary cause of the failure of many small businesses. Businesses fail because of the entrepreneur's lack of preparedness. Many entrepreneurs start a business, not because they have a business idea that can be profitable; rather, they are dissatisfied with their present state of affairs. They may be frustrated with their current job, or have an urgent need for additional money - that they'll jump into any business venture without first checking it out. Without carefully investigating the business, it would seem like "jumping from the frying pan straight to the fire."

Where can you get good business ideas? Searching for new ideas and concepts is a formidable task. Some ideas spring forth, fully formed. Others simmer for years, waiting for the opportune moment.

The business idea for you may lie in your previous work experience or your familiarity with the daily operations of a business.



It may be a result of your side activities, hobbies or other interests. Many entrepreneurs consider business ideas that will provide the greatest likelihood of meeting their desire for personal fulfillment.

Business ideas can come, not from your interest level or experience, but from after a thorough analytical search. You can look at the potential profitability of the business, and determine the comparability of the business with both your investment and income goals. Or you can study the projected growth of the industry to see if the business can commensurate for the level of risk it require.

Starting a business from scratch is not something that can be done on a whim. But there is nothing better or more fulfilling than starting a business from your own idea, and seeing it grow into a success.

http://www.powerhomebiz.com

Small start-up businesses don’t usually have the resources to launch huge advertising blitzes in multiple media formats. In fact, even if you are already in business, chances are you don’t have an extensive cash allocation earmarked for promotion, or you’ve tried many different advertising approaches and vehicles and haven’t hit on a really successful campaign yet. You aren’t alone!

Advertising is extremely expensive. Despite adequate funding, even large national companies often find it difficult to develop successful advertising campaigns. And, with an increasing number of companies advertising through every imaginable communication avenue, it is becoming increasingly hard to attract the attention of consumers.

However, there are non-advertising approaches to promotion. They generally require less money to implement and are often more effective. The only catch is that they require time and creativity to develop.

Coupons
You don’t have to distribute coupons in print advertising or in big direct mail campaigns. You can hand them out on the street corner, at trade shows, or just about anyplace else. You can send a few to your best customers, or you can include “next purchase” coupons in customer orders.

Coupons can be “quick and dirty” to design and print because their selling point is price, not image. To assure your chances of getting an additional sale or establishing an ongoing relationship with your customers, make your coupon offer exceedingly generous.

Contests
People love contests. They even love to see other people win! Just witness the phenomenal success of game shows on television. If you choose to develop a promotional contest, in-fuse it with fun, make it silly, and don’t forget to really talk it up. If your contest is wacky and crazy enough, you should be able to get good media coverage—and remember, this is essentially free advertising!

Gifts
People love to receive something for free, even if they have to pay a premium price for a more expensive item to get the freebie. Don’t ask why! It may not make sense, but it doesn’t have to, as long as you make money. While this technique has been used most successfully in the beauty and cosmetics industry, it can be used in almost any business endeavor. It isn’t unheard of to see deals such as a free computer desktop with the purchase of a higher-priced notebook computer or, even a free subcompact car with the purchase of a full-price luxury sedan!

Frequent buyers
Frequent-buyer programs can be very powerful tools for building loyal clientele for both retail and service businesses. The more common approach is to give customers a card that is marked after each purchase and results in a free or reduced-price product or service offering after a specified number of regular-priced purchases. For example, ten haircuts may net one free haircut. Another approach is to give regular customers a discount on purchases upon presentation of their “Frequent Buyer” discount card.

Some businesses charge a small fee for their frequent-buyer cards. Others tie freebies or discount levels to purchase volume. For example, after spending $100 at a computer store you might receive a free subscription to their newsletter or 5 percent off your next purchase of $25 or more. After spending $250 you might receive a free storage disk or 10 percent off your next purchase of $25 or more.

Frequent buyer programs are also often implemented by independent retailers trying to survive the onslaught of superstores that offer their customers super-low prices.

Exclusive offerings
Offering exclusive purchases or previews of new merchandise to existing customers is a great way to inspire a feeling of excitement and loyalty. To enhance participation, you may wish to offer a discount. If the exclusive offering is in itself extremely attractive, the discount can be small.

Events
Hosting a special event in your business establishment, such as a celebrity appearance or a charity fundraiser, is a terrific way to introduce people to your business or maintain contact with existing customers. It also will create an aura of excitement and goodwill. You may even obtain media coverage!

Cross-promotions
You don’t have to be a movie producer or own an international fast-food chain to cross-promote your product with another business. You might consider offering free tickets to the local theater with each purchase of a particular item or price level. Another great business-to-business cross-promotion might be to offer free tickets to a ball game to any business willing to invest fifteen minutes of time just to listen to your sales pitch.

Trades
Ever notice the ads for car washes on taxi roofs? Car washes don’t pay cash for these advertisements! They get the exposure in exchange for cleaning the taxis periodically. If you are absolutely sold on developing an advertising campaign, remember that smaller media outfits will sometimes accept products in lieu of payment.

Giveaways
You’re probably wondering how you can make money if you give away product! Well, it’s a lot easier and less expensive than advertising. In fact, giveaways have their place in just about any type of business.

Selling business-to-business, you can generate goodwill with the people you choose—your best customers or a select roster of potential clientele—by occasionally giving them a small gift when you call on them. The giveaway should not be so expensive that a feeling of bribery is conveyed, but nice enough that it doesn’t end up trashed the minute you leave.

For consumer service businesses, you may want to offer your product for free trial periods, or offer free estimates if you are in a service-oriented business.

Retail businesses may hand out balloons or other novelty items to build traffic or retain customer interest.

New customer offers
Attracting new customers is one of the most difficult marketing challenges to achieve even with powerful advertising or a dedicated sales force. That’s why different businesses—national greeting card manufacturers to local oil delivery services—offer incentive pricing, freebies, or extra advertising allowances for new customers. Even lawyers customarily offer a free first consultation.

http://www.businesstown.com

The advantage of buying a successful business in comparison to starting a new one can be overwhelming. Perhaps the biggest plus is that a huge amount of risk and uncertainty is eliminated. There are not only existing customers, but a track record of what is selling and what isn’t. And, since the basic business infrastructure is already in place, you can focus on improving the existing business, rather than on reinventing the wheel.

Customers
The most important asset you may acquire in buying a business are the customers. Even with a great product or service, building clientele can take time. Be sure the customers are satisfied and that they will remain loyal to the business after the current owners have sold out.

Employees
Identify and assess the value of all key employees. Arrange to meet with them. Ask yourself: How critical are the current employees to the business? Do the salespeople have strong relationships with key customers? Would a particular engineer’s or designer’s talents be difficult to replace? How important is the role of the current owner? You might even consider offering incentives to certain employees to assure that they will remain with the business at least through the transition period.

Facilities
Leases are not an integral part of the balance sheet yet they can be a tremendous hidden liability. Find out if the current owner personally guaranteed the lease(s) and ascertain whether or not the landlords will insist you personally guarantee them as well.

There are important regulations to consider as well. Environmental legislation, in particular, places the burden of polluted property cleanup on current property owners and in some cases leaseholders. Find out if the property was ever owned or leased by a manufacturer involved in activities that created hazardous wastes that could have contaminated the soil. Find out whether or not any clean-up action has already been taken.

Financial statements
Don’t take historical financial statements at face value, especially if they are not accompanied by a satisfactory audit letter from a CPA firm. Don’t confuse a compilation (basically adding up the numbers provided by the client) or a review (a compilation with a few ratios figured out) with an audit. Only an audit requires that a CPA test financial information. If the seller offers you projections, don’t even look at them!

Receivables
Chances are, if the business has receivables, their value is overstated. Carefully examine an aging of the receivables and determine what amount is outstanding past normal industry practices (nominal stated terms are often ignored). Then assume that an appropriate amount of receivables that are still current will also become bad debts.

Inventories
The market value of the inventory is almost certainly going to be a lot less than what was paid for it. While even larger businesses tend to have a fair amount of slower- moving items in inventory, many small businesses are even more hesitant to write down or sell off obsolete items.

Competitors
Be sure that you are not walking into a competitive mine-field! Is a price war beginning? Are your competitors slashing their margins to the bone? Did the current seller hear advance reports of a powerful international corporation entering their market niche?

Attorneys
Much more so than in buying a house, you need to consult with an attorney familiar with small businesses before signing an offer to buy. This is particularly important because of the many hidden liabilities you may be taking on, such as contracts, employment obligations, pending litigation, bills to vendors, leases, and more.

Confidentiality
You need to have a firm agreement with the current owner as to with whom, at what stage of the negotiations, and under what conditions you can discuss your interest in buying the business. Telling key customers that you are considering buying a business that is not yet publicly for sale can pose a risk to the business and expose you to potential litigation from the current owner.

Valuation

Start by carefully estimating the net positive cash flow for the next five years, after subtracting a good salary for your talents—one in line with your market value if you were employed in a similar management capacity elsewhere. Then determine the appropriate multiple of earnings to use to arrive at a fair valuation. The appropriate valuation should reflect the amount of risk inherent in the business and the importance of your efforts towards making the business succeed.

http://www.businesstown.com