Advisers to entrepreneurs need to be aware of a host of potential pitfalls
Richard Reed, co-founder of Innocent drinks, is fronting a BBC Three series looking for budding entrepreneurs. Reed will be investing £1m of his own money in the best ideas. But as the legal adviser to one of the successful entrepreneurs what would come next?
Whether your client is proposing to sell a product or service there are plenty of factors they need to think about to get their business off the ground. Have they thought about the governance and commercial issues that will impact on the business, for example licensing regulations and health and safety issues? Identifying the power to establish or participate in the business will need to be an early consideration. They may need a specific qualification, or to register with a regulator.
Have they considered what legal format the business will take, such as partnership, charity or limited company? Their options may be limited depending on other factors, for example who is involved, the nature of the product and whether any regulatory issues apply.
It is likely the client will need to purchase products or services and so should consider how these will be sourced. Contracts with suppliers will need to address issues such as timing of supply, rate and timing of payment, and liability for any delay or other default.
Your client may be operating out of their frontroom or they may be considering purchasing freehold or leasehold premises. How will this affect cashflow and risk? Who will own the premises and who is responsible for maintaining them? Premises may need to be adapted to make them suitable and this will cost money.
One of the largest outlays in running a business is likely to be the staff. Time should be spent considering the workforce and the basis on which staff will be engaged, whether as employees or self-employed workers. As an employer your client should be advised to familiarise themselves with their legal obligations, which are extensive. They may need to establish a payroll system and put in place contracts of employment and a staff handbook.
This may all seem a bit daunting, but if your client is up for the challenge then it will be time to prepare a detailed plan for the business. This will help to focus ideas, identify key risks and test the viability of the product or service. The business plan should include a description of the product or service, an explanation of objectives, pricing analysis, risk assessment, a description of the management team, premises or estates issues, an explanation of the reason behind their chosen legal format and relevant financial information.
This should put your client in a position to be able to approach any actual or potential investor or lender with confidence and so help to make their dream become a reality.