Business 102 - Getting Started

This is for people getting into business for the first time. You’ve got an idea, planned it out, but now it’s time to get serious. It’s time to start trading.

There are three ways of trading. These business entities have different advantages and disadvantages – mainly in relation to personal liability, tax and law.

1. Sole Trading / Sole Traders

A proprietorship or sole trader is a business with one, fully liable owner. So yes, if this business does not receive more money than it pays, the owner is completely liable for unpaid debts.

2. Partnerships

This one has multiple owners who share profits and losses and can share liability or take limited status. These tend to be multiple sole trading service providers – ie: dentists, lawyers, accountants etc.

3. Limited Companies

This is when things get a bit more serious. You are incorporating your business by law. Owners are now ‘shareholders’ and now reap a benefit of limited liability – liable only for the money they invest into the company.

Now that you are incorporated though, there is a greater responsibility on administration in comparison to the other two, and if you are starting out in need of cashflow, banks may (read: more than bloody likely) require personal guarantees on overdrafts or loans.

It is Limited Liability Companies that can evolve later into PLC’s (publicly listed companies) or owned by trusts or charitable organisations for other advantages and considerations. But I might post that shit later.

Depending on your business, and especially regarding your first year to 5 year plans, I would choose the right entity to start with. How much are you looking to turnover? How much cash will be tied up in assets or goods in stock? Staffing requirements? Where possible I would always start as a Sole Trader or Partnership, however if your plans are grander and the need for liability cover is greater than the administrative burden – go Limited, baby! And kick the shit outta your business!!

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