Understand the red tape, cut it, and grow

We recently investigated the knowledge gap that exists around legal issues with UK small businesses through research into 250 start-up business owners. Our ‘Tech and the Beanstalk’ report found that almost a third of UK business start-up owners (28 per cent) are unaware of the legal, IP, data protection, regulatory and compliance issues that might impact their companies. Because of this, small business owners are failing to protect themselves, leaving them exposed to an average loss of revenue of up to £10,000 a year in unexpected legal costs and fines.

Avoid becoming unstuck

For many small businesses, the fear of running up hefty bills for legal services is a common concern. It can take some time before even successful, fast-growing ventures can justify the expense of building an in-house legal team. Yet professional legal advice on a raft of issues such as HR, health & safety and data protection requirements is essential if a business is to avoid coming unstuck as it grows. Legal issues can quickly come under the spotlight, and things which didn’t seem important in the early days can take on a big significance.

So how can firms avoid falling down this rabbit hole of unforeseen legal issues?

1. Lay down the building blocks early

Often small businesses won’t anticipate quite how much effort is needed to manage the legal considerations that come with starting up on your own. The building blocks have to be laid down early to allow your business to develop at a strong consistent pace. If you fail to do this, you could be stung with delays and expenses at a time when you should be spreading your wings. Sooner or later, your business may want investment, to be acquired or to go public, so getting a legal ‘health check’ for the offset is key to ensuring you start out right.

2. Protect your ideas

Safeguarding ownership of your work product is crucial for most companies and intellectual property can form some of a business’ most valuable assets. It is therefore essential to ensure you own or have a licence to what you use, sell, distribute or licence. This means you need to be able to identify the intellectual property rights you have, make sure you truly do own them and understand how to protect and exploit them. Alongside this, it’s important to make sure that none of this infringes on anyone else’s rights. Getting this right at the beginning will save you money and time in the long run.

3. And safeguard your staff

Taking on employees is a vital step in growing a business. But to do this, it’s important to understand what the legal obligations during the recruitment process and throughout employment are. Written contracts, work permits and holiday entitlement are all key areas that need to be covered off correctly from the off-set. Getting the legal formalities right at the outset and getting into good habits of administration can prevent difficult questions arising later on.

4. Avoid feeling taxed by taxations

Tax has the potential to impact on all aspects of both the initial set-up and day-to-day running of your business. Considering and incorporating tax issues from the outset can ensure that your business is established in the most tax efficient way. It’s also important to consider tax issues going forward to ensure that you’re complying with all of the relevant tax law requirements and making the most of any available reliefs and other opportunities. For example, what’s the latest on corporation tax and the current rates that apply to small businesses? Or what PAYE reporting regulations will you be under? Finally, make sure to always take specific advice as tax law and tax rates change regularly.

5. Don’t let data protection derail you

As they should, many new businesses see a lot of potential in new media for marketing their products, however it’s important to be aware of the complex legislation designed to protect customers’ confidentiality. Make sure you’re fully compliant with the Privacy and Electronic Communications Regulations, which cover host digital technologies to protect the confidentiality of communications – for example ensuring that your customers are able to refuse cookies. Remember that unsolicited direct marketing emails and similar e-communications which are sent to individual subscribers are now regulated. Make sure to only send these to those that have given expressed consent to receive such materials, otherwise you may be liable.

Paul Callaghan is partner at international law firm Taylor Wessing.

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