Adventures in Micro Business

Each month, Professor Russell Smith answers your queries
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Q: My accountant has advised me to consider raising equity finance for my business, which will involve me making a pitch to investors. Is there anywhere I can go to observe how these pitches are made and see the types of questions that get asked by investors?

A: Generally speaking, investment pitches are private and made behind closed doors - it is therefore unusual for the public to attend such meetings. However, Business Link has placed a number of useful videos on YouTube. One of these is about raising finance and includes a sequence with a business owner pitching to investors. The video features a question and answer component that covers the kind of information investors are usually looking for. Take a look at the Business Link website for more information about their videos or go direct to YouTube.

Bear in mind that you will need a business plan and cashflow forecast to accompany your pitch. It would also be sensible to speak with your lawyer about drawing up a shareholder agreement to define a set of rules that all shareholders (including yourself) would need to agree to; this would cover how certain decisions are to be made and times shares can be sold.

Q: I currently work full-time but I would like to start my own business as a mobile car mechanic. I would like to work evenings and weekends to begin with, in order to see if I can make a go of it. What should I say to my employer?

A: Start with your contract of employment and look to see if it contains anything that might restrict your out of hours activities. If you are currently employed as a car mechanic, your employer might be quite unhappy to see you offer a competing service in the evenings and weekends! Don’t forget that you will need to declare additional earnings to the Inland Revenue, so do visit an accountant to sort that out.

Q: I have just set up working from home as a designer for business brochures and other documents. A new client has asked me to “assign the copyright” - what does this mean?

A: Copyright is an intellectual property that arises automatically when you create a new work - if you created the work then you own copyright over it. Here, you are simply being asked to transfer ownership of that copyright to the client. For example, if you design a logo then the client may want to be able to use that logo in many different ways (website, business cards, brochures and so on) without having to ask your permission every time they do so. Whether that is in your best interest is a commercial judgement that will depend upon various factors, including the potential for future work from that client. Take a look at the Intellectual Property Office website as it has lots of useful information about copyright.

Q: Would my accountant be able to advise me about insurance?

A: Your accountant will certainly be able to offer advice, although you should ask them to recommend an Independent Financial Adviser (IFA). The IFA is not linked to any specific provider and will recommend the best forms of cover for your business.

JARGON BUSTER

Minority shareholder

Someone who is unable to control the activities of a company by virtue of owning less than 50 per cent of its shares. However, it is possible for shareholders to agree to certain things that would require, for example, 70 per cent or even 90 per cent of shares to agree for a vote to be passed. In this way, the rights of minority shareholders are protected. Such conditions are set out in a Shareholder Agreement, a legal document that all shareholders would need to sign.

Unequal voting

Something usually fraught with problems! Ownership of shares in a limited company allows for profits to be distributed in proportion to the number of shares held. Voting power is also usually in proportion to the number of shares held. However, shareholders may agree to unequal voting in which the votes of certain shareholders count for more - for example, the business founder may have the “Chairman’s casting vote”. Shares that come with additional rights over ordinary shares are called “Preferential Shares”.

Send your questions to Prof Smith at independent@businessboffins.com. Selected questions will be answered each month. Answers are for the general guidance of owner-managers only; always seek professional advice. Professor Smith is the founder of Business Boffins Ltd which, in collaboration with Oxford Brookes University, Anglia Ruskin University, Warwick University, Manchester Metropolitan University and University of the West of England delivers support programmes to small businesses nationwide. Independent and Independent on Sunday readers can enrol on the programme at a discounted rate; see businessboffins.com/independent.

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