Thinking of starting a new business? You’re not alone. The number of new companies registered in the UK reached a record high this year, with 53,000 in May and 38,000 dissolved, pushing company formation numbers up to 3,721,493, the highest ever recorded.
Although this spike in company formation numbers is encouraging, the sobering fact remains that only half of all start-ups make it past the 5-year threshold. So, how can you make sure that your start-up succeeds? The British government’s innovation agency, Innovate UK, has produced a video outlining their top 4 tips for ensuring your start-up succeeds:
At Company Warehouse, we’ve registered thousands of companies over the years. We find that one of the most crucial predictors of success is how well budding entrepreneurs approach Innovate UK’s 4th step of starting a business: mapping your finances. Before starting a business, ask yourself, “How long will my initial cash last? When will I need my first investment? What are my production and staff costs?” Running out of cash is the second most common reason why start-ups fail, so you can’t underestimate the importance of this stage.
How to choose the right business structure
One of the questions we most frequently get asked by people at the start of their company formation process, is ‘what sort of company should I choose?’ There are six types of company available in the UK, and it’s worth thinking carefully about the type of company you plan to run, your expected level of risk and how much turnover you’ll be generating.
If your business plan is low-risk and low-cost, you might want to register as a sole trader. Sole tradership is one of the quickest, easiest and cheapest ways to start a business. If you’re a sole trader, you own all the assets of a business and all the profits that it generates. You’ll have complete control over how your business is run and you won’t have to make your data public. However, you won’t be seen as a separate entity from your business, by the law. This means that if your business gets into debt, your personal assets may be at stake. This could mean your house, television, car, or any other personal assets being seized. This is why many people opt for the advantages provided by a limited liability company instead.
When you set up a private limited company, your business is registered as a separate legal entity, meaning your personal assets are protected. Furthermore, if you choose an LLC structure, you can share the responsibility of running your company and involve other people in your decision-making process. You’ll also be exempt from some of the higher tax rates that apply to sole traders.
Alternatively, if you’d like to start as a sole trader, but don’t want to rule out expansion, you can change structures later on down the line. As businesses expand, they often outgrow their original legal structure.
Getting the right business structure is key to mapping your finances thoroughly. If you have a clear plan of how your business is going to operate, not only will investors take you more seriously, but your chances of landing on the right side of the start-up success statistics rate will multiply.
At The Company Warehouse, we’ve helped thousands of new businesses get started. We provide help with company formation, accounts and marketing. If you have any questions about starting a business, register with us, or give us a call on 0800 082 8727.