Topic overview

Types of business

Types of businessOnce you're satisfied that your business idea is viable and you want to start up, you face several choices about what form your business could or should take.

Work-life balance and how much you want to earn are key considerations. You also need to decide on a legal structure, guided by how much personal financial risk you are prepared to take and other key considerations.

Financial considerations

Part time or full time? That is a, if not the, question. Your business idea might only work as a part-time or even seasonal venture (eg summer business). There are many people who run such ventures to supplement their main income. Others combine various part-time businesses to generate an overall income.

Before making a full-time commitment, you might hedge your bets by sticking with your day job and starting your business on a part-time basis. If things work out, you might be able to commit more time later on.

Others share responsibility and risk by forming a business with family members, friends or colleagues. Rather than incurring all the costs associated with starting your business from scratch, you might even decide to buy an existing business or a franchise.

If you might need your new business to provide a full-time wage from the off, carry out basic calculations to find out what wage the business could (bare minimum) afford to pay you. If that's not enough, you'll have to reconsider your options.

Work-life balance

A part-time business might be more suitable for you - especially if you have family commitments. When circumstances change (ie your children reach school age), you could scale things up.

Be warned: running your own business can be significantly more time-consuming than you might expect. There are many tasks to get through each day and you might have to take some home with you, which will have an impact on your home life.

The dream of running a part-time business can quickly turn into a full-time headache, while running a full-time business can mean you have little time for anything or anyone else.

Choosing a legal form

When considering which legal business structure to go for, think about cost and administration implications, as well as how much personal financial protection you want. Whether you start a business with other people will also influence the legal structure you choose.

The main options when forming your business include sole trader, partnership, limited liability partnership and limited company.

Setting up a business doesn't have to be about making a lot of money and building empires. You could set up a social enterprise or Community Interest Company, which are intended to meet societal needs rather than generate vast profits. Such businesses can still provide a good wage for those who run them.

Business premises

Premises usually form the second biggest overhead for any business after staffing costs. You should consider carefully whether you really need business premises when you first start up. A growing number of people now run highly successful online businesses. This can be a lower-risk option, yet one that can still prove lucrative. Avoiding the expense of renting or buying premises can mean you need a lower turnover before you start to make profit.

Many entrepreneurs minimise their costs by starting a home-based business or renting flexible, shared workspaces which can be used by the hour, day or longer without having to commit to a long-term lease or licence.

If all this has done is left you with more questions than answers - good. It's far better to do the thinking now, because basic errors made when starting a business can be difficult and expensive to rectify later on.