Opprtunity to run an Entrepreneur's start-up business, what are the options?

mbbetter

I posted this thread under employment - but realise it should probably go here - apologies for the double thread:

I'm not sure if this is the right place to post?

A close friend of mine is currently engaged in conversations with someone that owns an embryonic business that is gathering momentum.

The business owner needs to find someone with the right expertise to grow the business. The business has the potential for significantly high growth. The owner will still have day-to-day influence, but act in more of a chairman capacity.

Currently my friend is in full-time employment and would need to resign from their job to work on this full time.

The business currently doesn't have any employees and the owner is quite entrepreneurial and doesn't really want to get involved in HR, Pay, National insurance, Pension etc.

However he is looking to come to some sort of agreement to re-reimburse my friend with some form of regular salary and potential profit share.

I'm going to suggest to my friend that they seek professional advice, and I know they have started looking at: businesslink.gov.uk and other resources, But any pointers on what would be considered a good plan?

- Become an employee?
- Set-up a company and set up a contract with the owner?
- Become a partnership?

My friend doesn't have an appetite for risk or much capital to invest, but their expertise is absolutely essential to the rapid growth of the business.

Advice greatly appreciated - if I should post on a different board please let me know.

Thanks in advance

Opprtunity to run an Entrepreneur's start-up business, what are the options?

Savvy_Sue

mbbetter wrote: »

The business currently doesn't have any employees and the owner is quite entrepreneurial and doesn't really want to get involved in HR, Pay, National insurance, Pension etc.

I have no idea what to say about the rest of your post, but I think it's worth saying that it is perfectly possible to effectively sub-contract this aspect of a business out, as long as the 'owner' doesn't take the attitude of "I'm not doing that!" to their legal obligations.

For example, the entrepreneur may be prepared to work silly hours all year round, in sickness and in health, and actively avoid holidays. To expect an employee to do the same is wrong, and will end in tears. So the entrepreneur could get someone else to draw up the terms and conditions of employment, and then accepts that they don't argue with them! It's what you pay the professionals for!

And a good payroll service will take care of the tax and NI, and be on top of the incoming arrangements for compulsory pensions.

paddyrg

I would suggest something like the formation of a ltd company with the investor as director, your friend as sole employee (at the moment) and minority shareholder. They have no financial exposure beyond the share face value, and the investor isolates his other ventures from this one financially too. Payroll etc can be managed by pretty much any accountancy for approx £20/month and your friend can also take a dividend (as can theinvestor) once the company is making proper money. The investor can also incentivise your friend with more shares in the company for specific targets met - meaning your friend will also put in a lot of sweat equity to match the investors financial equity, but ownership/etc is still very cleanly managed. See an accountant about this all, if it looks like a financial hit, they will be keen to join in

CKhalvashi

The best thing to do here is to have a Ltd company set up for the running of this. Until the company is making £947k/yr in profit, you’re better off doing it this way, and there are further incentives beyond that.

As far as running someone elses business is concerned, I have, to an extent, done the same thing, as business partner wanted to stick full-time on the music side of things. We are now one of London’s largest groups doing the London side of things, and one of the most specialised in Europe for the other part, so it is perfectly reasonable to work like this.

What your friend will have to remember, though, is that there is little in the way of workers rights for company directors; Even 7 years into the venture, 2 mergers and various joint operations with 2 Dutch and Spanish companies, which have led us to work with household named annual events in various European companies have still left me working 4-5k hours a year, with little in the way of time off, which is something that, industry dependent (I’m in Music/Film) may be something for your friend to consider.

It’s also going to be vey worthwhile to remember that as he is running the business, he should be pushing for 50% (and ideally 50% + 1 share, which is what I hold) of the company. This is the easiest way of splitting profits.

Also, be careful what he signs in the form of personal guarantees. Companies (and one that myself and OH bailed out to save 75-ish jobs shortly before I became a Cllr in 2002 nearly did) go wrong, and it’s occasionally not able to see this before it’s too late.

Your friend should be pushing for a free half hour with a Solicitor and Accountant before going anywhere. Your local council may have both as Cllr’s, which if friend is looking at becoming a reasonably sized employer in the area you live, may be able to help.

All I can think of for now, but please ask any further questions your friend has for me. I prefer to keep things on these boards rather than PM’s, due to the nature of my political activities outside of MSE.

Also, take note of what Sue says. I trust her opinion on any MSE post, and she’s an asset to the business boards due to a wealth of knowledge.

Many thanks

CK

Savvy_Sue

Reading the posts above, it's clear to me that your friend needs to consider what sort of person they are: do they want the risks and rewards of being a company director, or do they want steady employment, and the right to take paid holidays etc. Not that the two can't be combined, but it's a starting point!

I'm led to this thought, because while I'd like to accept what CK has said above graciously, I think it's only fair to point out that I know how far my expertise extends, and most of what I know outside my comfort zone I learned from other posters on MSE ... :rotfl: You lot and Radio 4 ...

I've also been known to get it wrong - very wrong sometimes!!!

I used to be self-employed in a very small way, not enough to have to pay tax or NI. I've never run a ltd co. I learned a LOT by being on the committee for the start up of TWO out of school clubs - that, if you like, is running your own business without getting any financial reward, and frankly, the fact that I did it twice means I must need my head examining, because the first time was the steepest learning curve I have EVER been on, getting to grips with employment issues, running payroll, and learning how to do recruitment, all while balancing the books with nowhere near enough children attending and doing fundraising and publicity to address that little problem. Oh, book keeping, did I mention book keeping in line with lottery grant standards?

That definitely taught me that I don't want to run my own business ...

However, I've been fortunate in my day job to have 'good' employers, in organisations who know how to do HR - policies in place before you need them, for example. And I've also learned that when you don't know, you take proper advice, the kind you can rely on, because you pay for it so that you can sue the pants of the person who gave it if they get it wrong.

CKhalvashi

Savvy_Sue wrote: »

Oh, book keeping, did I mention book keeping in line with lottery grant standards?

Hmmmmmmm, and by the standard of grant forms, it’s not very nice!

Savvy_Sue wrote: »

And I've also learned that when you don't know, you take proper advice, the kind you can rely on, because you pay for it so that you can sue the pants of the person who gave it if they get it wrong.

Which, btw, isn’t on these boards. As already mentioned, although I am experienced in and qualified to give business advice, I only do this to fee-paying clients. I also (probably) don’t have a knowledge of the trade your friend is in, and thus am giving generalised advice on the topic.

Tell your friend to get a free consultation with a firm of solicitors and accountants, preferably visiting without the other investor present, or even knowing of this. This is the best way to get the best opinion on what’s happening.

If the investor is this keep for your friend to work with him, he will understand why precautions are being taken, and possibly pay for this, however my advice again would be for him to choose his own firm, pay for it, and claim it back, so there can be no influence at all.

CK

paulwf

If this friend is already in full time employment and isn't a risk taker or investor then why jump ship to go and work for a company that currently has no employees? This new company is being run by someone who doesn't even know how to sort out a payroll system for staff, hardly an entrepreneur and chairman.

It sounds risky to me, and so far it hasn't been mentioned if anyone on board has the skillset to run the financial side of a business which will be crucial.

mbbetter

Hi Guys and Girls, Many thanks for the responses - very much appreciated.I will pass on all of the the advice and it is very valuable.

Regarding a couple of points.

As far as I know the company does have an accountant, so I guess payroll etc could be done through the same channel.

My friend is not a risk taker in terms of putting their house on the line to fund the business. However they could survive without a job for 6-12 months if it all went very pear shaped.

The business venture is close to signing a significant (6 figure) deal with a client and has several other very realistic opportunities of the same size. The company has a very small cost overhead and 1 deal would bring significant profit in the short term.

I'm of the opinion if it sounds too good to be true it probably is, however my friend is already in the same line of business and will be the one building the strategy and business model.

paddyrg

Were I your friend, I would make sure I was drawing a salary, maybe a small one just enough to cover her bare costs, from day one. It sets the right tone.

mbbetter

Thanks paddyrg

They are in a great position as the owner has offered a generous yearly equivalent for time invested - which in its own right sounds great, and I think the model of being on the payroll sounds a good idea.

The consideration is what if this business does grow aggressively and rapidly (mostly down to my friends hard work and strategy) to get a piece of the action, I guess share options are the way to go.

Thanks again all - appreciated particularly as I am being quite vague on details - I may just get my friend to sign up here.