Thinking about starting an owner managed business?

22/07/2022

Whilst starting your own business is exciting, it’s easy to get caught up in the thrill of putting your great idea on the market, which can jeopardise your business plan.

Your vision for your business will be unique to you, but it is important to not let your passion override what is realistic.

As such, starting and managing your own business is far from easy, so you must have a clear plan of action to ensure your success.

What are the types of owner managed business?

How your business is structured can have a substantial impact on the way it is run, the tax that you pay, and the amount of personal risk involved in setting up your new enterprise.

With your vision in mind, you need to decide whether you should take on this venture alone, or with partners or shareholders.

In the case of unincorporated businesses, such as operating as a sole trader or partnership, there is no legal difference between you and the business, meaning that you will take on unlimited liability for any profits or debt that the business incurs.

If you choose to operate as a sole trader, there will be no distinction between your business’s income and yours, so any profits will be subject to income tax.

Alternatively, if you have at least one other person that you wish to run the business with, you could start up a partnership instead.

In terms of unlimited liability, this dilutes some of the responsibility. But you, as the owners, are still personally liable for the business’s finances.

For this structure, you and the other Partners will be responsible for individually paying income tax and National Insurance on any taxable profits you receive from the business.

Running an unincorporated business is often less complex and doesn’t require owners to comply with the Companies House rules, including the requirement to submit annual accounts.

However, as pointed out, it does carry a lot of personal risk. In comparison, owners and shareholders of a limited company enjoy limited liability.

This type of legal protection prevents individuals being held personally responsible for their company’s debts or financial losses.

This is because the company is registered as a distinct legal body and effectively classified as a ‘person’. This means that they can keep finances separate from those of owners and hold assets and retain profits after tax.

It is important that you carefully consider what structure works best for you as it can have big implications on the tax that you pay, as well as your compliance requirements.

How will you fund your business?

With owner managed businesses, it’s common for people that are involved in the business to fund the venture, including Partners or family members.

Of course, this places your, or your family’s personal finances on the line, should the business fail.

Therefore, whilst dreaming big is encouraged, if you opt for personal funding, you may wish to funnel a small amount of money to get your business off the ground.

Loans from high street banks are another popular finance option for OMBs. However, start-ups may struggle to obtain a bank loan if they do not have a clear business plan in place.

If loans aren’t the right option for you, we can also help you to use debt providers to obtain financing.

Other non-traditional forms of financing, such as crowdfunding, are becoming more and more popular. How effective this will be for you is dependent on your business idea and whether the public deems it a worthy cause.

Other options include attracting investment through the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS).

In our next blog, we will discuss how owner managed businesses can make strategic decisions.

Need advice on starting your OMB? Contact us.