Lts vs Sole Trader

[Olivia K]

Hi everyone can I ask if you were to open a coffee shop in the UK, only with maybe 3 or 4 staff max, would you set it up and a Sole Trader or Limited company and why please?
Thanks, Olivia xx

 

[Olivia K]

Sorry got the title wrong I mean Ltd!

 

[Mr D]

I would choose limited for the liability protection. Company debts are not your personal debts without major problems or personal guarantee.

 

[Olivia K]

Thank you Mr D so who picks up the debt then if the company fails? xx

 

[Mr D]

Those who gave credit.

Its not pleasant but businesses do fail, often with substantial debt that ultimately cannot be repaid in full.

 

[Olivia K]

Ok so you mean who ever gave you the monet to set it up ie. the bank right? But what if you set it up yourself and paid for it out of your own savings? Then is it still better to go Ltd?

 

[TomJ83]

With a ltd, the liability protection applies regardless if you paid for setting up the business yourself.

 

[Scalloway]

Briefly if you are a sole trader there are fewer formalities for running the business but you are personally liable for all debts.

A limited company is subject to more red tape but that earns you the right to limit your losses if the business folds.

 

[Olivia K]

Ok thanks guys I have sooooo much to learn don't I! xx

 

[Mr D]

You often find banks, landlords and sometimes card issuers requiring personal guarantees - so if business folds they can chase you personally for the outstanding debt.

Plan to succeed, factor into your planning what happens if things go wrong.

Quite possible (has happened many times) that people have lost their savings in setting up and running a business. One of the risks of using your own money.

 

[Olivia K]

You often find banks, landlords and sometimes card issuers requiring personal guarantees - so if business folds they can chase you personally for the outstanding debt.

Plan to succeed, factor into your planning what happens if things go wrong.

Quite possible (has happened many times) that people have lost their savings in setting up and running a business. One of the risks of using your own money.

That's what I am afraid of I really don't want to lose my money! I still feel I am missing something, surely I can make money but need to know how! xx

 

[TomJ83]

I think you should stick with what you want to do. Opening a coffee shop. If you hadn't got passion for it you wouldn't mention it. There are risks with everything but if you create a proper business plan where you include a economic projection, then you will see if the idea is viable or not.

 

[Mr D]

You can buy my bestselling book 'How to make money when you don't know how'. Price £250. (joke).

Seriously you can buy books, do market research, find the perfect spot, get great supplies - and get not quite enough customers to break even.
Or do well then some external factor reduces spending on your products.

A business tends to be risk, the trick is usually to reduce risks and manage them.

 

[Olivia K]

Thanks Tom and Mr D I know the coffee shop is definitely front runner! I even told people that I thought hey why not go the Hooters route and I wear a low cut tight top to get more in lol joking but I was saying we need to use all means possible to get the most sales.
Do you really have a book out Mr D?
And also Tom how do I do a economic projection then? Thanks, Olivia xx

 

[Mr D]

Maybe one day I'll write one for publication.

 

[TomJ83]

A good business plan should have financial tables. Prince's Trust have templates on their website:

https://www.princes-trust.org.uk/help-for-young-people/tools-resources/business-tools/business-plans

There is also a website with information about costs when starting a coffee shop. That will give you an idea of the outgoings.

http://www.howtostartacoffeeshop.co.uk/idea-of-costs.html

 

[TheAccountancySolutions]

Normally, I would advise for a limited company. But if its a startup and you are not going to have instant turnover, I would advise registering as self-employed. You can, later on, register a company and transfer the ownership to Limited Company depending on how you got on with your forecasts. You need to thoroughly investigate and prepare a business plan which should include statistics of the same kind of business around your area, population analysis i.e., how many working and retired, How many people you expect to walk into the shop on normal working days and on weekends. What additional food and any niech product you can provide. Marketing budget including your website and how you can do local SEO. Then you need to concentrate on figures like sales and expenses. If it's not busy or you tend to believe you will get busy in tree months time its advisable not to hire people in the beginning. The big capital cost other than your shop purchase will be the renovation. Revenue cost will be salaries and advertisement. Most of the food business fail because of two major reasons. They are not well investigated before the start and second, they lose heart in the middle. As you have said in your posts its a front-runner, but I would advise otherwise. Do investigate and write a business plan with a budget and revisit your financials on weekly basis for the first six months to see the variances in your turnover and expenses. By the end of six months, you will come to know the shortfall just by looking at the daily takings.

 

[Lisa Thomas]

Thank you Mr D so who picks up the debt then if the company fails? xx

The assets are sold to cover the costs of insolvency/liquidation and if any funds are remaining they are paid in a certain order back to creditors. Any balance is then written off so the creditors are the ones who lose out.

You do have protection with a Ltd Company as you are not personally liable for the Company;s debts unless you have 1) given personal guarantees to creditors, like a bank for example and/or 2) committed offences under the Insolvency Act 1986 that an Insolvency Practitioner and/or the Insolvency Services could pursue you for it the Company enters a formal insolvency procedure.

On that happy note best of luck with the new business!

I would recommend you get a good accountant to help you.

 

[Olivia K]

Thank you soo much guys I really appreciate all this!
I am looking into creating a business plan now so this will help a lot. Also I will be getting the best possible Accountant, I know they are quite costly but I am sure I can work something out with one.
Thanks again, Olivia xx

 

[Glenn Martin]

Yes defo speak with an accountant as there is also the difference in taxation between a company and a sole trader to consider. Nearly all my clients are companies.

 

[Olivia K]

Yes defo speak with an accountant as there is also the difference in taxation between a company and a sole trader to consider. Nearly all my clients are companies.

Thanks Glenn are you an Accountant then? xx

 

[Glenn Martin]

Yes I am one of many accountants on the site. I do a lot of work in the hospitality sector also