The COVID-19 pandemic saw a rise in entrepreneurship, with the Bank of England reporting that contrary to the typical cycle of company creations, which tend to rise in booms and decline in recessions, the number of new companies set up during the pandemic in fact clearly increased.
The Bank of England reported that the number of registrations increased from 50,000 a month to 60,000 a month after March 2020 and solo entrepreneurs rose from 60% to 65% of the total (in other words, the uplift is almost entirely down to an increased number of solo entrepreneurs). Governmental support schemes, such as the Coronavirus Job Retention Scheme and the Bounce Back Loan scheme, cannot explain the rise in company creations as these all required companies to have already been in existence when the pandemic began. One of the reasons for the boom in entrepreneurship can likely be attributed to people generally having more time whilst working from home to reconsider their priorities and to reflect on what they would like their future to look like.
Despite the rise in company creations, the Bank of England predicts that these newly created companies are almost twice as likely to dissolve within the first year of their incorporation than newly created companies incorporated pre-pandemic. So how can pandemic entrepreneurs ensure that their business not only survives but thrives post-pandemic?
Tightening up commercial contracts
Whilst it may be easier in the short-term for new entrepreneurs to agree and rely on verbal contracts, formalising agreements with third parties (e.g. clients/customers, suppliers, manufacturers, contractors, etc.) in writing can help to clearly define the terms of a business relationship, better protect the business and make any future disputes easier to manage.
The Bank of England reported that companies founded by first-time entrepreneurs were disproportionately concentrated in the online retail sector. Given the additional statutory protections for consumers, entrepreneurs will need to be particularly aware of not inadvertently breaching the law in B2C arrangements. Our top tips for drafting online consumer terms and conditions sets out why entrepreneurs should never overlook terms and conditions when developing and launching an app or service.
Data protection is also an area commonly overlooked by entrepreneurs – if the business is going to hold and process personal data, entrepreneurs should be aware of its data protection obligations and ensure that the correct notices and policies are in place to help manage compliance.
Getting investment
Most start-ups are bootstrapped but as the business grows, founders may look to get external funding to help them take the business to the next level.
Essentially, there are two basic types of funding: debt (borrowing money on the condition that this is paid back within a certain timeframe, with interest) and equity (raising money by selling part of the ownership of the company). When raising investment by way of equity funding, entrepreneurs most commonly turn to:
- Investment from family and friends
- Angel investment
- Venture capital investment
- Crowdfunding
In order to determine whether a company is worth investing in, investors will research and investigate the company so it is important that the company is ready to answer any questions potential investors may have, and has all the necessary documentation in place in relation to its assets and records. Our blog on how to prepare for raising investment sets out the steps a company will need to take before reaching out to investors.
Growing the team
Solo entrepreneurs often wear multiple hats and there will come a time where tasks and roles will need to be delegated. When taking on help and growing the team, entrepreneurs will need to consider the capacity in which people are taken on.
The law recognises three types of employment status: employees, workers and consultants (self-employed contractors). Determining a person’s employment status from the outset is important as it will govern that person’s rights under employment law and the extent to which the company has responsibilities towards them.
Our blog on employment status sets out the differences between employees, workers and consultants and pre-hire actions the company should take.
For first-time entrepreneurs, take a look at our business basics blog for the steps to take in establishing in business.
Don’t forget to also check out our “Lifecycle of a tech start up series” which follows a group of entrepreneurs in their business journey, from setting up the business, to raising investment to everything in between and beyond!
Further Information
Kingsley Napley has a dedicated team of corporate and commercial lawyers with extensive experience setting up companies, advising entrepreneurs and drafting commercial agreements and we will be able to assist you with all your business needs, from inception onwards.
Kingsley Napley’s Entrepreneur’s Group comprises dedicated members of our Corporate, Employment, Data Protection, Immigration, Dispute Resolution and Real Estate departments, working also with members of the Private Client and Family teams where applicable.
For advice, or further information on the above, please do not hesitate to get in touch.
About the Author
Mei Chung is an Associate in the Corporate, Commercial and Finance team. She advises entrepreneurs, investors, startups and established businesses across a variety of sectors on a broad range of corporate and commercial matters.
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