Professional Documents
Culture Documents
Enterprise Ass 1
Enterprise Ass 1
When setting up a business one of the first things you need to do is to choose
your legal structure. This means you have to have to decide which type of
business you are going to be in the eyes of the law and tax office. Stokes and
Wilson (2006) give the four main legal forms possible for a small firm as ³ Y
Y
è (Stokes and Wilson,
2006 pg.239). When starting a business on your own you can start it as a
limited company or as a sole trader. When starting the business with other
people you can start it as a limited company, partnership or a co -operative.
Entering into a partnership is similar to that of the sole trader but there is more
than one of you. Liability is now shared between each partner and creditors
can take any partner¶s personal assets to pay off the company debts, even if
another partner runs up the debts. Self -assessment tax returns should be
completed for each partner as well as the partnership itself. In partnerships
exist the two terms jointly and severally liable. Joi ntly liable means each
partner is equally responsible for paying off the whole debt and severally
liable means that each partner is responsible for paying the whole debt. In
England, Wales and Northern Ireland partners are jointly liable; in Scotland
they are jointly and severally liable (Business Link http://goo.gl/s21Hf
accessed 20/1/11). Appendix 1 shows advantages and disadvantages of
forming a partnership.
If you wish to protect your self from liability you can set the business up as a
limited company. This means that the company is the legal entity and the
finances of the company are separate from that of the owners. This doesn¶t
mean that you are entirely safe though as you can still lose a ny money
invested in the business and directors may have to give a personal guarantee
to secure external finance (Business Link http://goo.gl/OjzKAaccessed
21/1/11). There are three main types, private limited companies, public limited
companies and private unlimited companies. Limited companies are not as
easy to set up and you need a solicitor to help you set it up. The setting up
involves registering the company with Companies House and drawing up a
µmemorandum and articles of association.¶ This is basically the details of the
business including the company name and address, objectives of the
business, nominal capital, limitation of liability, names of members and their
share of equity, powers of directors and the voting rights (BAXTER, 2010
pg.4). The accounts for the company have to be externally audited and th ese
too have to be sent to Companies House where t hey are kept on public
record. People can be put off starting a limited company because of the
amount of administration that there is to do and the cost. This can be
lessened though by buying a business that has already been registered and
set-up legally. Appendix 1 shows advantages and disadvantages of forming a
limited company.
Currently the plan is to have just one person working for the business but this
is likely to change with growth. When employing people there is employment
legislation that should be con formed to and this will include pay, minimum
wage, employment contracts and conditions, flexible working, sickness
absence, time off and holidays and working hours
(http://www.direct.gov.uk/en/Employment/Employees/index.htm accessed
23/1/11). Once you start employing people you need to inform the HMRC if
they are earning enough to pay tax or National Insurance, have another job or
are receiving employee benefits, so that the correct tax is being paid. You
also need to register if you are running a one -person limited company, as you
are an employee of the company (http://goo.gl/4bk64 accessed 23/1/11).
(http://ec.europa.eu/enterprise/policies/sme/facts -figures-analysis/sme-
definition/index_en.htm accessed 7/1/11 )
á Financial Assistance
á Lightening of Tax and Administration Load
á Information and Advice
(www.musicweek.com/story.asp?sectioncode=1&storycode=1043744
accessed 12/1/11)
The most useful of these is the ab ility to claim for capital allowances. A capital
allowance means that you can claim money back against equipment that you
buy for use in your business. This is extremely useful for setting up a
recording studio as you will be able to claim money back on essential
equipment such as microphones, and mixing consoles. It also allows you to
claim back money on equipment for your business that you already own. The
advantage of this is that when setting up a recording studio you are likely to
already own some of the equipment needed. Currently the main rate for
capital allowances is 20% but this will reduce to 18% from April 2012 in
accordance with the Government Budget 2010 (appendix item 2). The budget
also outlines a reduction in corporation tax from 28% to 24% over 4 years
from April 2011, although this would only be useful for this business if it is
decided to set it up as a limited company.
Another of the above allowances that could be useful is that tax and NIC are
not payable on equipment that is lent to employees. This allowance could be
used, in the case of the recording studio, to equip staff (if or when any are
hired) with computers to enable them to do some work at home.
Stokes and Wilson (2006) give examples of how legislation is adapted for
small businesses; being exempt from some responsibilities of the Disability
Discrimination Act (DDA) (1995) if they have less than 15 employees and
businesses with less than 5 employees do not have to have a written safety
policy for the Health and Safety at Work Act (HASWA) (1974). These policies
are relevant to setting up a recording studio and record company as in a
recording studio you have to work with the public and they will be on your
premises so you must comply with a lot of regulations including fire
regulations and those already mentioned above.
The final area of the three specified by Stokes and Wilson (2006) is
Information and advice. The foremost service for this is Business Link, which
is a government-funded service that offers advice and guidance to businesses
in England. The service provided by Business Link is extremely
comprehensive and covers every aspect of business but they also have
specific sections of knowledge for starting up or growing a business. Scotland,
Wales and Northern Island each have their own equivalent of Business Link.
á Energetic á Resourceful
á Creative á Likeable
á Competent á Innovative
á Shrewd á Positive
á Ruthless á Diplomatic
á Likeable á Charismatic
á Self Belief á Visionary
á Opportunistic á Practical
á Bold/Brave á Responsive to criticism
á Determined á Decisive
á Adaptable á Confident
á Good timekeeper á Risk Taker
³
Y YY
Y
Y
Y#
YY
Y
Y Y
+ (Delmar, 2000 pg.145)
The above list is a list that is meant to be general to all businesses. One that
should be added to the list with the music business in mind is to be thick
skinned. The music industry, like most industries, can be extremely
competitive and it is also notoriously fickle. Pattenden (2004) notes,
³, Y
YY
Y
Y
Y
-
"
Y
Y
.
" ." Y
Y
Y Y
"Y
Y
Y
è (Pattenden,
2004 pg.2).
Small businesses such as this one can be funded by the following means,
For low-level investment such as this business external equity finance can be
acquired from friends, families or other people such as µbusiness angels¶.
Smith (2006) describes these as ³
Y
Y
YYY
Y
è (Smith,
2006 pg.62). For their investment the investor would e xpect a relevant or pre-
agreed share of profits.
Instead of purchasing equipment they need , small firms may prefer to hire or
lease the equipment. This is useful if the initial cost of equipment neede d for
start-up is too high.
This business has two parts to it, the first being the recording studio and the
second being the record label. When people use the recording studio facilities
the business is going to get a return quite quickly, usually on the same day as
the invoice is issued if paid in cash, but the record label side of the business
will have to wait to see a return as the process of releasing a song and waiting
for any royalties to come back form the various collection societies can be
months.This could be a problem so internal finance is probably going to be
needed by using profits from the recording studio to finance the label.
First 12 months:
á Difficulties accessing business advice
á Availability of premises
á Marketing Skills
á Availability of credit
(BCC, 2008 pg.10)
Expansion Stage:
á Managing expertise
á Cash flow
á Tax and regulation
á Strategic direction
(BCC, 2008 pg.15)
cash flow sorted out should be a priority as without cash it is extremely hard to
survive.To survive business development it is important that the business is
running well, if the business is struggling then it is best to fix the problem
before expanding as you are just making the problem bigger. One way of
improving cash flow would be to hire a manager. An experienced manager
should be able to help sort out the cash flow and provide management
expertise and strategic direction, all three problems sorted out in one tidy,
albeit at a monetary cost, package. If the cash flow does not allow enough to
employ a manager it may be more cost effective to hire a consul tant who can
set you on the right path to being able to afford a full -time manager. This type
of outsourcing could also be used in other areas of the business,which would
help the business develop without necessarily hiring more staff.
The main difference in management between a small firm and a large firm is
that in a large firm the manager or managers are likely to be in charge of
certain areas of the business and they focus on their own tasks. ³ ,
Y
Y
Y
YY
Y
Y
YYè
(Stokes and Wilson, 2006 pg.328). A manager in a small firm, typically an
owner-manager, has to deal with everything behind the scenes and still deal
with customers at the same time.
onclusion
This report has covered a lot of important topics that should be looked at
when starting a business. It is geared towards the setting up of a recording
studio and record label business and as such I have tried including only
information that can be interpreted as being relevant to this particular
business model. All of the topics could be t he subject of individual reports
themselves and as such there may be some information missing that could
not be included within the scope of this report. Where further or more detailed
information is needed I have tried to include it as an appendix. For so me
topics, such as the legal structure of a business, I have only included the
details and possible advantages and disadvantages, as only the entrepreneur
setting up the business knows what may best suit their personal situation.
Bibliography
ooks
Delmar, F. 2000. Family and Enterprise. In S.Carter, and D.Jones -Evans, eds.
2000
Y
'Y
YY. Harlow: Pearson Education Limited.
Ch.8
pebsites
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#Y
R
Y [online] Available at:
<www.bis.gov.uk/policies/better-regulation/policy/simplifying -existing-
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BIS, N.D.
Y!
[online] Available at:
<www.bis.gov.uk/policies/enterprise-and-business-support/access-to-
finance/enterprise-finance-guarantee> [Accessed 7 January 2011]
Bytestart, N.D. -
!
!
[online] Available at:
<http://www.bytestart.co.uk/content/finance/43_2/invoice -finance-and-
factoring.shtml> [Accessed 11 January 2011]
Directgov, N.D.
,
Y
Y [online] Available at:
<http://www.direct.gov.uk/en/Employment/Employees/index.htm> [Accessed
23 January 2011]
Griffiths, N., ,
!Y[online] Available at:
<http://www.publicservice.co.uk/pdf/dtlr/winter2001/p160.pdf> [Accessed 12
January 2011]
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[Accessed 12 January 2011]
åovernment Reports/jublications
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