For the first in a new Business Advice series on starting a new company, Grid Law founder David Walker explains which legal priorities should be at the top of every new business owner’s to do list.
Starting a business is one of the most exciting things I have ever done. So, if you’re reading this and you’ve either just started a business or are thinking about it, I’m right behind you.
When I started out, I knew the law, but I didn’t know much about running a business. However, I wanted to do everything I could to make it a success. So, I attended conferences, read books and watched plenty of videos. Just about every aspect of business was covered in minute detail – apart from one, the law.
Yes, there were a few startup guides given away by banks and the likes of HMRC which covered some of the basics, but they were hardly inspiring. This is a real shame because the law doesn’t have to be boring, bureaucratic and inflexible.
Hopefully, by the end of this startup series, you’ll feel enthused about how the law can be applied for the benefit of your business.
The rules of the game
Like me, you’ve probably heard many comparisons between business and sport and whilst some of them can seem rather cliché, they are useful to help put different ideas into perspective. So, I’m going to use this comparison too.
If you think of business as a sport, the law can be thought of as the rules of the game. These rules apply to everyone to ensure fair play and if you don’t know them or don’t abide by them, you won’t be playing for long.
When you start a new sport, you’re full of enthusiasm and just want to get out there and play. If you had to learn all the rules before setting foot on the field, that enthusiasm would soon wear thin.
So, you just need to know the basics to get you in the game. Business is just the same. There are a few essential laws you need to know about, and then you learn the rest as you go along.
The more seriously you take your sport, and the more you want to win, the more you invest in improving your skills and learning the intricacies of the rules.
It’s the same again with business and this is where the law becomes interesting. Suddenly, it’s no longer just about complying with the rules. Instead, you start using them to your strategic advantage, giving you an edge over your competitors who don’t know them as well as you do.
That’s where I hope you will be when we finish this series.
Legal priorities: Where do we start?
When a client first comes to see me about a new business, they usually have a good idea of the products or services they want to sell, how they’re going to market them and what their projected profits are.
They may or may not have a formal business plan, but when we look at the specifics, I often find they have budgeted nothing or next to nothing for getting “the legals” right.
It’s not that they don’t appreciate the importance of this, it’s usually that this is the first time they have ever seen a solicitor, so they have no idea where to start. Therefore, my first task is to help them prioritise what they need to do and then work out a realistic budget for achieving this.
There are no set rules about the order you must do things. What you decide to do very much depends on the type of business you’re running, who your customers are, what you’re trying to achieve and your tolerance for risk.
However, when we’re formulating a plan, I like to prioritise tasks in the following order:
- Things you must do to comply with the law
- Things you can do to reduce the risk of failure
- Things you can do to build a solid foundation for future growth and success
So, for example, if you are forming a limited company, you must comply with the Companies Act which sets out all of the rules of running a limited company. If you don’t you can be fined. When naming your business, there are laws which restrict the names you can choose. If you ignore them, you could be forced to change the name of your business and have to completely rebrand.
If you want to reduce the risk of failure, you and fellow shareholders could enter a shareholders’ agreement.
There’s no legal requirement for you to do this, but by clearly stating what’s expected of each shareholder, recording what you are all contributing to the company, and how you will resolve any disputes between you, your company will have a much greater chance of survival.
When you have complied with the law and reduced your risks to a level acceptable to you, you can think about building solid foundations for the future.
Now clearly, there may be considerable overlap between all three categories. For example, building a portfolio of intellectual property rights may reduce the risk your business is exposed to, but they can also be thought of as assets. These assets then form the foundation of the business and have the potential to grow in value in the future.
Budgeting for your legal priorities
When it comes to budgeting for all of this, there are different options to choose from and pros and cons to each.
If you have plenty of time on your hands, you can Google the answer to most questions. This won’t cost you any money, but let’s face it, if you’re starting a business and you have time on your hands – something isn’t quite right.
Next, you could use one of the increasing number of template libraries that are available online. These allow you to download standard documents at a fraction of the cost of using a solicitor and adapt them for your needs.
However, there’s always a risk associated with this. If you make a mistake amending them and they don’t exactly fit your requirements they won’t give you the protection you need.
Using a solicitor is always going to give you the best protection for your business, but I fully accept they can seem expensive. However, most solicitors will give you an initial consultation for free and you should be able to get a fixed fee quote for most of the tasks that need to be completed.
Also, shop around. The legal market is very competitive so there is often a deal to be found.
Over the next few weeks I’m going to be covering a range of topics which will help your business get off to a flying start. We’re going to look the different structures you can choose, the issues to consider when naming your business, how to forecast your cash flow and many other things too.
If you have a question for David Walker regarding your legal priorities, send an email to firstname.lastname@example.org and he will be happy to respond.
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