As the founder of a small business, you’re spending most of your time pitching your big idea to raise funding, developing a product and turning a profit – but there’s so much no one tells you about the fine print when it comes to things like tax, legal and accountancy. And often, the small surprises you learn the hard way have the biggest impact on your profit margins and ability to keep your company afloat to successfully grow your business.
To help you avoid the pitfalls that can cost you big, we partnered with boutique advisory, accountancy, tax and legal firm Dragon Argent to help you future proof your business.
We recently hosted a workshop at the AllBright club in Mayfair with the special advisory experts at Dragon Argent, sharing advice with our female founder members on issues related to tax, legal, accountancy and finance for their small or medium-sized business. Here’s what we learned.
Our key takeaways to protect your small business
Loss-making SMEs are able to claim up to 18.6p for every £1 spent on qualifying R&D activities and profit-making SMEs are able to claim up to 21.5p for every £1 spent on qualifying R&D activities.
Implement an Employee Management Incentive (EMI) scheme for key members of your team to motivate and reward them with incredibly tax-friendly share options aligning with your long-term goals.
Explore the Seed Enterprise Investment Scheme (SEIS) to help your company raise money when it’s starting to trade. The maximum inward investment eligible is £250,00 and there is tax relief on investment for the investor, they can claim 50% of investment made.
Write a comprehensive shareholders’ agreement and the articles of association for your company to keep control of your business, especially when you want to raise investment or sell your business.
If one of your co-founders leaves the business, take proactive steps to maintain control over your shares through thorough documentation.
Safeguard your venture by registering your trademarks, particularly with cost-effective global trademark options.
Form an exit strategy early. Establish multiple subsidiaries to manage different parts of your business successfully and plan ahead for a seamless and successful exit if and when the time comes.
The three most common mistakes entrepreneurs make and how to manage them
1. Failing to futureproof your business
Begin with the end in mind. James Phipson, Founder, Chairman & Head of Advisory at Dragon Argent, said: ”Founders need to plan their exit from the outset and work backwards from there. Think, if you want to sell your business in five years, where do you need to be in three? And what do you need to achieve this year to get there?
“Not only does this give you immediate, intermediate and final targets to aim for, but also it makes it obvious to your staff, partners and third parties what you are trying to achieve and their role towards it. It also explains to investors what return to expect and when.”
2. Not having proper provisions between co-founders
“Co-founders need to treat their collaboration like a marriage,” said James. “There must be a prenup (known as a Shareholders Agreement) and you should get appropriate advice.”
“However, remember that most lawyers have very limited or no business experience and will simply not cover the essentials, such as one partner wanting to reduce their workload, someone under performing or performing poorly, changes in life circumstances, accommodating the ambitions of senior and essential staff and making sure that your position is protected whilst it is still just yours. In other words, can you veto or block resolutions? Do you have a right to appoint a director?” he explained.
Establishing a comprehensive set of provisions in writing can help to settle difficulties or disputes when they inevitably arise.
3. Neglecting to protect your intellectual property through trademarking
“It’s never too early to think about protecting your business’s intellectual property and strategic planning may save you from unexpected costs in the long run,” said Margherita Barbagallo, Head of Litigation, IP & Art Law at Dragon Argent.
“When it comes to trademarks, the earlier you can register protections, the better – as they can be used to keep competitors out and give your business the freedom to operate in key markets. Further, if you are looking for investment in your company or for it to be acquired, the intellectual property of your business (including trademarks) will be an important factor to investors as it can increase the value of your company,” she said.
“There are two main stages for registering trademarks: the clearance search stage and the application stage. Clearance searches on existing trademarks are important from a due diligence perspective to protect your business, as it demonstrates that it is not infringing any third party rights. The business can then proceed with filing a trademark application with the relevant Intellectual Property Office. If in doubt, an IP specialist lawyer will be best equipped to assist you with these processes,” Margherita advised.
Looking to future proof and protect your business? The experts at Dragon Argent are at AllBright offering 1 to 1 complimentary consultations for advice to founders in our community. Book your slot on September 12th or October 3rd for Dragon Argent specialists to answer any questions you might have related to accounting, tax and legal issues for your business.