Bristol Solicitors

BRISTOL SOLICITOR FAQS FOR SMALL BUSINESS

What issues should be considered when buying a new business ?

The following are some basic issues you may wish to consider :-

• Look for hidden costs
• Look closely at the accounts of the business
• Consider any existing lease agreements as these can be notoriously restrictive.
• Do your market research
• Ask yourself why the owner is selling?
• Check carefully the position on employees
• Location – for a retail businesses with premises, location is crucial.
• Negotiate on the asking price – when you’re buying a business, negotiation on the final sale price is expected.
• Don’t sign a new commercial property lease without taking advice
• prepare a business plan
• checking existing contracts.

4 quick items to be very careful with as an exporter

• Export licences

• Jurisdiction

• Tax (VAT)

• Insurance

Tips on having a credit Policy

Developing a solid and consistent credit policy is very important, particularly in the current economic conditions. It can be very tempting to take on any new customer with a view to increasing sales, but taking on the wrong customers can be hugely damaging or even life threatening for a business. A good credit reference system will enable your business to:

• Spot new customers who have a credit history that could point to problems in the future.
• Check with existing customers for credit references before offering any credit yourself.
• Take action to minimise your losses if a customer refuses or can’t settle their bills.
• Keep your cashflow under control so you can identify regularly who owes you money and when this should be paid
• Communicate your credit terms clearly at the outset and obtain specific and clear confirmation of acceptance of those terms from all customers
• Charge interest for late payment

The government recognised some time ago that smaller enterprises were suffering because of slow payments. In some very bad cases larger businesses were taking over three months to settle their bills. Legislation was passed (Late Payment of Commercial Debts (Interest) Act 1998) that entitles all businesses to charge a set amount of interest on any outstanding debts that are not paid by their agreed due date.

There has been much debate as to whether the late payment legislation has helped small businesses at all. Many are reluctant to charge interest for fear of damaging the relationship they have with their customers. It is best to approach the charging of interest on late payments on a per case basis. You should have good credit checking procedures in place that will hopefully mean you don’t have to use the legislation.

What different types of business entities are there  ?

There are 4 main types, being :-

•             Sole trader – you are self-employed with no special legal structure,

•             partnership – (two or more people working together) you share the profits and losses

•             Limited company – this is a separate legal entity distinct from its shareholders, directors and employees

•             Limited liability partnership –

Advantages of operating as a sole trader

•             You can keep simple unaudited accounts

•             National Insurance is low

•             Unless your earnings are high, total tax payments can be lower than if you had formed a limited company

Disadvantages of operating a sole trader

•             personally liability for all business debts

•             fewer social security benefits e.g. if you stop trading, you cannot claim unemployment benefit

•             It may be harder as a sole trader to sell the business or pass it on

What are directors duties ?

The Companies Act states that the role of directors is to act in a way which they consider most likely to promote the success of the company for the benefit of its shareholders as a whole and that, in doing so, they will need to have regard where appropriate to long term factors, the interests of other stakeholders and the community, and the company’s reputation. There is particular focus on the area of conflicts of interest.

There are now 8 general duties specified as a company director’s role :-

• Act within their powers and in accordance with the company’s constitution
• Promote the success of the company for the benefit of shareholders, paying due regard to

the likely consequence of any decision in the long term interests of the company’s employees, the need to foster the company’s business relationships with suppliers, customers and others, the impact of the company’s operations on the community and the environment, the desirability of the company maintaining a reputation for high standards of business conduct

• Exercise independent judgment
• Exercise the reasonable care, skill and diligence that would be expected by a person in that position in a company of that size (eg an experienced non-executive director would have higher standards expected of them than a more inexperienced executive, but there is a minimum expectation of any director)
• Avoid conflicts of interest, including conflicting multiple directorships
• Not accept benefits from third parties.  Note that this does not necessarily include a director receiving a benefit from a person or company which provides services to the company. A more difficult area is the giving or receipt of corporate hospitality so it’s often advisable to put a policy in place regarding the limits on what can be received
• Declare interests in proposed transactions or arrangements.  Note that a director may not necessarily be party to the transaction or arrangement to be ‘interested’ in it
• Seek external advice where necessary, particularly if the company is in financial difficulty.