Throughout the development of any business, there comes a point when the question arises, should I cease trading as a sole trader, and register the business as a limited company. Read on to find out more...
Whenever this questions arises, certain pros and cons need to be measured up to ensure the step is appropriate for you and your business either now or in the near future.
Limited companies pay lower rates of corporation tax than sole trader's income tax, not forgetting National Insurance saving and alternative rates of tax on directors' dividends. In some cases, however, the tax saving is not guaranteed to be significant.
Because of the more robust corporate governance of companies, as well as the limited liability, it may be more likely that you can secure higher levels of investment than as a sole trader. This would make it more likely that your business could be scaled up to ensure future returns including opening up the possibility of Mergers and Acquisitions. However, increased governance requires increased administration costs and legal responsibilities that may handicap a business that is considering this step prematurely.
Suppose your business has already weighed up these and other considerations. Is 2022 the right time for a business to start up as a company?
Adam Graham is an entrepreneur who has built several successful companies in the technology and marketing sectors. His latest, Just Fix, is a hyper-local, real-time marketplace that provides fast and trusted solutions for fixing urgent home maintenance issues.
"There are potential economic headwinds with rising inflation and interest rates. But businesses that have understood and acted upon the changes of the past two years can find a strong springboard for success this year" says Adam.
Adam also sees further, long-term, business opportunities borne of lockdown through people's accelerated embrace of tech, such as video calls.
"Remote video is now commonplace, for example Just Fix's service includes the option for customers to connect immediately to a trained video triage operative to decide the most effective first steps they can take themselves."
"We're optimistic that the worst of COVID-19 is behind us. Spring is coming and there is much pent-up desire from people to get out there again and get back on with life as we knew it. We believe 2022 could be a bumper year for start-ups!"
Businesses may ride this predicted 2022 wave utilising an alternative structure, that of a limited company.
PurpleBeach help start-ups grow by collaborating with corporates and look to help businesses of all sizes deliver on their goals through innovation, digital transformation, talent and people development, networks and ecosystems, organisational transformation, hiring sprints and sounding boards.
"At the beginning of 2022, it is very clear that there will be no 'normal' or even a 'new normal'... there will only be NEW. This will continue to throw up interesting problems to solve, problems that will help customers, businesses, governments and society. Having said that, the fundamentals of what makes for a great start-up remain: meeting customer needs, product-market fit and having a great team to passionately build a new business", state the PurpleBeach team.
The new world may offer significant opportunities for growth for the entrepreneur brave enough to level up from sole trader to company. The new business structure may have to be combined with a new digitisation programme to unleash accelerated growth. Companies "will require further improvements in virtual communication and connection both commercially and privately, with a focus on the future of energy and sustainability, as well as health, education and entertainment".
"One of the biggest challenges facing early-stage businesses is finding product-market fit (PMF). On the journey to finding PMF, many start-ups focus their time on the product side of this mystic equation. But a lot can be said for diving deep into the market, especially when it's been shaken up by a global pandemic.
Markets are made up of people. And these people all have desires and needs. Many of these are shaped by their social, cultural and political environment. Over time, people do a pretty good job of finding products and services that satisfy their desires and needs. But as we try and get back to normal in 2022, things have inevitably changed. The disruption caused by COVID-19 has led to a plethora of new desires and needs - faced by millions of people across hundreds of markets. This presents an opportunity. Smart and fast-moving start-ups are perfectly placed to devise new products and services that fulfil the new demands of many markets", so opined Harry Williams, Co-founder of the company behind the Pluto travel app, the app that will help you get inspiration, organise a trip, and connect with fellow travellers, all in one place.
With more investment, and potentially greater research and development and marketing teams, a company is better placed to explore PMF in 2022 than any sole trader, however, entrepreneurial.
The COVID-19 pandemic has encouraged many to set up side hustles, secondary income streams, or break free of traditional employment models and set up business on their own. For many 2022 will be the time to level up, seize the moment and set up their first company. Opportunities and the technology to facilitate goal achievement, growth and profits make 2022 the ideal time.
This information does not constitute advice or a personal recommendation and you should seek advice concerning suitability. As with any investment your capital is at risk. Past performance is not an indicator of future results.