#43: Top Tips for Start-Ups – People and Legal Issues

So you have launched your business and are well any truly on your way to becoming a big success, congratulations! Over the next few articles I will be sharing my tops tips for start-ups, starting today with any people or legal issues that may come your way.

Let’s start with the legal issues:

1. Dealing with Lawyers

It is likely you will need to use a lawyer at some point in your start up phase. Make sure you understand what you are asking your lawyer to do, and what you will and won’t pay for, and push for a fixed fee.

Don’t be afraid to say if you think you’re not getting value for money. The best business lawyers can be a real asset to your growing business and become a trusted advisor.

Ask for a package deal that includes support on ad hoc queries over the first few months of trading (note that you may be able to access this kind of legal support service through membership of organisations like the IoD or your local Chamber of Commerce).

2. Business name

Is anyone else already trading with a similar name? Check the business name you want to use is available as a website domain and (if you are going to incorporate a company or LLP) at Companies House. Even if the exact one you want is available avoid names that could be confused with an existing business.

3. Data Protection

Register your new business with the Information Commissioner’s Office and make sure you understand the rules on handling personal data.

4. Business Plan

Does your business plan contain confidential or proprietary information about your products or services? Include an appropriate disclaimer and confidentiality statement on the first page, and in the footer “© [Name] Ltd, 2010. Confidential.” Consider whether you should ask recipients to sign a specific confidentiality agreement.

5. Founders’ Agreement

If your business has more than one founder, then whether you are a company, LLP or partnership you ought to have a properly drafted shareholders/partnership agreement. If not you will be bound by the default regime in the relevant legislation which may not be appropriate for your situation.

Think of it as a “pre-nup”: what to expect from your partners, how are you going to run the business on a day to day basis, and what will you do if you fall out?

6. Terms and Conditions

You will need properly prepared terms and conditions for dealing with your customers/clients. Make sure you understand what your obligations are in terms of the quality of your products or standard of service, delivery, and refunds. Always insist on trading with your customers on your own terms and conditions.

7. Distance Selling

If you are selling to consumers (B2C) over the internet or phone you will need to comply with distance selling regulations that specify what information you must give to customers, and an unconditional right to cancel and get a full refund in the first seven days.

8. Consumer Credit Licenses

If you are dealing with consumers (B2C) and either hiring goods for more than 3 months, or selling on hire purchase, or offering other credit terms you may need a Consumer Credit License.

9. Raising Money

If you are looking to raise money from investors you need to make sure you don’t fall foul of the rules on financial promotions – what you can say and to whom. If you get it wrong your investors can ask for their money back so this is one area where you should obtain specialist advice.

10. Intellectual Property

Keep your know-how and proprietary data safe and use a confidentiality agreement if you are going to disclose it. Is it important that you stop others copying your ideas, products or services? Applying for patents and trademarks is expensive and can take a long time and only effective if you are prepared to enforce (very expensive and time-consuming). You can use the ™ symbol without registering a trademark, although it has no legal significance in the UK.

Now that we have covered the legal issues, it’s time to turn our attention to people. Here are my top tips for people issues you might encounter:

1. Recruitment

You are bound to need people working with you in your new business. Recruiting the right individuals is important. A good place to start is using your network to identify known candidates.

You could also place adverts online – there are several cost effective job boards which can harvest lots of CVs. Bear in mind that if you get someone with 75% of the skills you need you are doing well. If you still don’t find someone then use a recruitment agency, but make sure that you negotiate a good fee rate upfront.

Always carry out thorough interviews and ensure that you draw up a list of competencies and skills that you want for the job.

2. Reference checks

Once you have identified the right person make sure you carry out independent reference checks before they join. Many people are not completely honest on their CVs. Do not accept previously written “To whom it may concern” references. Always contact previous employers.

You may wish to conduct a Disclosure and Barring Service (DBS) check with the criminal records bureau (CRB) and Independent Safeguarding Authority (ISA). These were previously known as CRB checks, but are now called DBS checks.

3. Pay

An important part of the business dynamic is how much to pay yourself and your team. Take advice from your accountants regarding tax because this will drive the pay structure. Make sure that you appoint someone competent to run your payroll and to manage issues like PAYE, P60s and P45s. You can download the forms for PAYE here.

Pay is likely to be one of your largest overheads and so make sure that you do notoverpay staff. Try and be creative such as offering commission for increased sales so that your increased income can improve pay for some staff.

4. Employment contracts

If you employ staff make sure that you give them some form of employment contract. This should lay out key aspects of employment such as salary, notice period, holidays, benefits, disciplinary and grievance procedures.

There are several HR outsource businesses that can provide low cost help such as Right Hand HR (previously HR Advantage). The main aim of the contract is to avoid any misunderstandings later on.

5. Organisational Structure

Most small firms have a fairly flat reporting structure. However, as you employ more people it is important to be clear about who does what and who is responsible for what. A brief job description for each job including who the individual reports into will avoid problems later on. This will also help when you appraise performance.

6. Policies and procedures

It will be useful to have some basic people policies and procedures once you employ more than two or three staff. The main reason is to try and capture all the small employment issues before they arise. A staff handbook can outline how you will deal with issues such as maternity leave, disciplinary issues, compassionate leave, benefits and any restrictions post-employment. As the business grows you can add policies as appropriate.

7. Performance management

Most people want to know how they are performing at work. You should have some form of performance appraisal process. As a minimum formally appraise everyone at least once a year. Use company and individual objectives to ensure that everyone’s efforts are focussed in the same direction. Also take into account learning and development for your team. Improving skills will end up adding value to the business overall.

8. Dealing with disputes

When you employ people there will inevitably be disputes. Make sure that you always treat everyone fairly and be consistent when dealing with problems. Make sure that you follow due process if you have to discipline anyone – failure to do so can be regarded as unfair and claims can be made accordingly via an employment tribunal. The ACAS website is helpful in this regard.

9. Non-executive Directors

As the business grows it is worthwhile appointing non-executive directors. These are typically people who have expertise and can advise you on how to take the business forward. Initially they may be unpaid but in due course you should pay them a nominal fee.

10. Succession Planning 

In order to ensure business growth you should plan for changes of personnel. People leave firms for a range of unexpected reasons so it is worth thinking about who could replace key roles. Some entrepreneurs are always interviewing potential candidates in order to keep the people pipeline alive. It is also important to provide development opportunities where possible.

Next time I’ll share my top tips for information technology issues.