A large proportion of my clients are taking the great leap into business ownership. It is inspiring to see them willing to get out there and follow their dream of owning their own business, whether it be something they are setting up themselves from scratch, going into a franchise, or purchasing an established business.
It is important to structure your business properly from the start. Just because you are going into business with a friend or a family member, doesn’t mean things can’t turn sour and ugly very quickly.
I have had a client spend $100,000 in legal fees, and end up in court because of a business relationship with a ‘friend’ that went sour. The end result was that they agreed to put documents in place that should have been there from the start. Don’t get me wrong, the documents would not have stopped the ‘friend’ from trying to do the wrong thing. The relationship still would have gone sour, but our job of proving that the ‘friend’ had done the wrong thing, and what the intentions of the parties were when they set up their business, would have been easier and it probably would have cost them a lot less money if they had the right documents in place from the outset.
These disputes can happen to anyone, whether you’re a relatively small business, or a large multinational company.
One of the first discussions my clients and I have is how to set up the business, what is your structure going to be? Sole trader, partnership, joint venture, company and so on? Have you thought about what is the best structure for you? Often their answer is “I don’t know, what do you think?” I usually have ideas on what I think is the best structure for them, but their question means I need to ask more questions of them including what they own, their family situation, what their plans are for the future, and then I need to speak to their accountant so that we can sort it out together.
If it is not done the right way up front, it may be expensive to change the structure in the future, for example, if you want to go from being sole trader to a company. A franchise may mean it then becomes a new franchise. A lease of a shop may mean you will need a new lease. Keep in mind you would also be paying the franchisor and the landlord their costs for the changes.
The right structure can minimise tax and protect your assets. People often want to avoid spending the money at the beginning because they are ‘already outlaying so much money’, or ‘it’s just a small business’. But, spending the money now can save you money, time and anxiety in the future.
Don’t wait. Get it right before it ends up costing you a lot more money than what it would have to do it right from the start!
For further information, contact the Commercial Business & Property Team.