6 Tips Which Will Transform Your Exceptional Idea into a Prosperous Business - Tip 2

This is the second of six articles which will assist you in transforming your great idea into a successful business. The tips listed below sequentially follow the steps you need to make. We have already talked about Step 1, so today we will have a look on Step 2.

1. Have a stunning, different, exceptional idea
2. Choose the most suitable structure for your business
3. Think branding
4. Appoint an accountant
5. Get ready to launch
6. Open for business and start making money

Tip 2: Choose the most suitable structure for your business

Now when you have an idea, you must decide on business structure. In general, four options are considered as most popular for budding entrepreneurs and home businesses – registering as a sole trader, forming a partnership, registering a limited liability company (Ltd) or limited liability partnership (LLP).

There are other options such as community interest companies and co-operatives, offshore companies and franchises and public limited companies (PLC). Although these are often associated with massive profits, they take much more to found and manage.

There is likelihood that an inexperienced entrepreneur will find it difficult to deal with all demands the latter structures involve. Therefore, this article will look only at the four most popular.

Table 1: Pros and cons of organisational structures

Structure	Pros	Cons
Sole trader	·         Easy foundation process ·         Low cost ·         Full control retained ·         Very little financial reporting	·         Full debt liability ·         Higher tax rates ·         Lack of trustworthiness in consumer eyes
Partnership	·         Even lower costs ·         Shared responsibility yet full control if the right partner is chosen ·         Better opportunities to raise finance	·         Still full liability for debt but affecting all partners ·         Still very high tax rates ·         Limited credibility in consumer eyes ·         Communicational problems may occur
Limited company (Ltd.)	·         Less personal financial exposure ·         Favourable tax regime ·         Opportunity to enter B2B market	·         Considerably higher administrative and regulatory demands ·         Public exposure of annual accounts and financial reports (i.e. the company bears the responsibility to place them in a public domain)
Limited liability partnership (LLP)	·         Members' agreement could enable higher flexibility ·         The structure combines the benefits of partnerships and limited companies	·         Profit taxed as income ·         Disclosure of partners’ income is mandatory ·         LLP risks to be struck off if trading does not start within a year of registration ·         Communicational problems may occur

Use the table above to summarise, organise and understand the benefits and drawbacks that each structure encompasses. In case that you still feel confused, you can used the links at the end of the article and do some additional reading.

Alternatively, I would like to offer you a simple technique which will enable you to weigh the suitability of each structure for your business. Effectively, it works as a risk management grid but its greatest advantage is that it gives tangible value to intangible factors.

So, use Figure 1 and simply follow the steps:

1. Copy and paste the grid in a new Word or Excel Document
2. Copy and paste all positive and negative factors from Table 1 in the appropriate field (you can add or remove factors as relevant)
3. Consider the impact of each factor to your business idea and give it value from 1 to 5, then consider its likelihood and do the same. After that multiply the impact  and likelihood each factor has to work out its score (it must be between 1 and 25)
4. After you have done the same thing for each factor, you work out Score P by summing all positive factors’ scores. Score N is result of all negative factors’ scores
5. Finally, the structure suitability s result of Score P – Score N

You must do the same thing for each structure and then compare the results. The one that scores higher is likely to be the most appropriate choice for your business.

Figure 1: Organisational structure evaluation grid

Sole trader
Positive Factors	Impact	Likelihood	Score P
You list and evaluate all advantages of the structure with regard to your business	Scale from 1 to 5	Scale from 1 to 5	Relevance x Strength
Negative Factors	Impact	Likelihood	Score N
You list and evaluate all disadvantages of the structure with regard to your business	Scale from 1 to 5	Scale from 1 to 5	Relevance x Strength
Sole trader structure suitability = Score P – Score N

No matter what structure you choose, you will need to find a good accountant (we will talk about this in Tip 5). But in case you pick to register a limited company (Ltd.) or a limited liability partnership (LLP), I would recommend you to look for support with your overall paper work. The benefits are innumerable and I say this from personal experience.

Let me explain…

FIRST, registering a company with Companies House (it is mandatory) involve understanding a bunch of legal terms, which often scare the wanna-be entrepreneurs.

SECOND, it requires registering office address which will be used for future correspondence. If your business is home-based, it means that you will have to provide your home address making it available for the broad public.

For various reasons, people are afraid of or not willing to disclose publicly their home address. For this reason, they can benefit from virtual office providers. Signing up for this kind service enables you to use the address of the virtual office provider as your registered office address while keeping your home address private. All your Companies House Letters, HMRC Letters and trade letters are sent to the virtual office and then forwarded to your address by your provider.

THIRD, virtual office providers usually use addresses in reputable areas which can project professional image to their clients. For example, a company that is registered in Kensington or Piccadilly will be perceived in a different way in comparison with a company that is registered in Derby.

LAST BUT NOT LEAST, virtual office providers (such as Registered Address Limited) usually work in partnership with other companies in order to offer a greater selection of services that could be added to the above mentioned virtual offices and mail forwarding.

For example, using virtual receptionist will enable better time management and will project more professional image to your company. You can be referred to reliable accountant at discounted price. Other perks include website design, branding services, SEO and PPC ad campaigns and free business advice.

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In conclusion, once you have ensured that your business idea is robust, sustainable, marketable and most importantly profitable, you must consider what organisational structure will deliver the best results. The task is cumbersome and the decision - critical. Do NOT merely make a guess. Rather than that educate yourself on the topic and then weigh all positives and negatives. If you like numbers do use the provided grid. And do not forget, if you need help, it is not difficult to get it. It is one phone call or a few clicks away.

Stay with me for the rest of the business transforming tips. Also, share this article if you think it will help someone you know. And feel free to ask any questions that interest you.

Useful links:

Companies House: http://www.companieshouse.gov.uk/

Direct Gov – Self-Employment: http://www.direct.gov.uk/en/Employment/Jobseekers/LookingForWork/DG_173931

Direct Gov – Working out your employment status: http://www.direct.gov.uk/en/Employment/Understandingyourworkstatus/Workersemployeesandselfemployment/DG_183494

Registered Address: http://www.registeredaddress.co.uk/

Step 1: Have a stunning, different, exceptional idea: http://registeredaddress.blogspot.com/2012/01/6-tips-which-will-transform-your-great.html