Welcome to the Journey Behind the Scenes
Welcome back to the second instalment of our behind-the-scenes series. This month, we delve into the practical considerations that are essential for turning vision into reality. From managing resources effectively to setting achievable goals, these insights will provide you with the tools and strategies needed to navigate the complexities of your journey. Whether you’re in the early stages of your venture or looking to refine your approach, these practical tips will help you stay on track and make informed decisions. Join me as we explore the nuts and bolts of building a successful and sustainable path forward.
As I wrap up the second month of my portfolio career, I’ve had some significant highlights and valuable learnings. This month, I focused on the practicalities of setting up my business, including the decision to incorporate. While the process was straightforward, it came with its own set of challenges, particularly in banking. In this article, I’ll share my experiences, the obstacles I faced, and the key takeaways that might help others on a similar journey.
Limited Company or Sole trader
So, one of the first decisions this month was around incorporation and whether to create a limited company for my ventures. Now I say decision, but it did not really feel like a decision as I knew early on, I wanted to incorporate. When a former colleague asked me how I made the decision whether to be a sole trader or a limited company, I really had to think as to how I came to that conclusion. For me three things stood out as benefits for incorporating and having a limited company were:
- Legal entity: I wanted the separate legal entity, separating my personal assets from the business and along with that came limited liability.
- Financial Control: I wanted the control that comes from choosing whether to pay out earnings or retain in the business as working capital.
- Scalable Structure: Finally, and perhaps most importantly, I wanted a structure that could be scalable and grow with my ideas which was simply not possible as a sole trader.
However, these advantages don’t come without other considerations and costs.
Incorporating in the UK
Being originally from the British Virgin Islands, an offshore financial centre, I knew that incorporation could be straightforward. However, I nonetheless was under the impression that in the larger countries the process would be complex or difficult.
Accordingly, I was very impressed that the process of incorporating through Companies House in the UK was surprisingly easy and straightforward. It was all done online, the process was very intuitive, and I don’t think it took more than 20 minutes. Additionally, the fee was minimal, only £50 to cost effective at least to begin. To be fair on the simplicity though, I had prepared.
- I had gone on to the Companies House website and read the guidance there in advance, so I knew what information was needed
- Additionally, I used their online name checker to ensure my desired company name was available.
- Finally, I used Chat GPT to find out the most appropriate industry (or SIC codes) for the desired business activities
Thereafter you only needed the basic information like contact information, who were the directors and shareholders and how many shares were you going to be issuing. Accordingly, once you had made those decisions in advance it was a breeze and only 24 hours later, I had my certificate of incorporation. Accordingly, most people don’t need to pay anyone to incorporate for them in the UK and I would argue that the process to renew my passport is more complicated and more expensive.
Banking
Where things got complicated though was banking. Now, having spent most of my career in financial services and payments, it is a shame, but I really underestimated this step and what being on the other side would be like. While I completely understand the importance of compliance and know your customer type checks I just assumed that as a person with a good credit record and the like, this would have been straightforward, this was not the case!
Bank 1: The first bank I applied to just rejected my application in less than 24 hours. I found this completely fascinating, I was not applying for a loan, just a standard bank account and clearly the company had not been in existence for long enough to do anything risky. This was further perplexing as I had applied to one of the larger new challenger banks that I had thought would have been friendly to start-ups.
Bank 2: So, next I tried a traditional bank, my first impressions were good, no immediate rejection. Expectations were very low. They sent some follow-up questions, which I thought fair enough, but after the fifth set of follow-up questions where it felt like I was just answering slightly different versions of the same questions I was beginning to lose the will to live, and I moved on to another bank. Although technically I had not been rejected, I was just lost in a never-ending spiral of more questions.
Bank 3: So, again tried a different challenger bank and this time within a few hours I had a bank account. No hassle, no follow-up questions. The opposite of the other experiences.
I can’t account for why my experience was so different across these three institutions, one can assume it is just the difference in risk appetites but surely a frustrating process for new start-ups. Ideally, there would be better signposting of which institutions were truly welcoming to start-ups and who was not. All the banks that I tried to bank with, did claim they were but my experience highlights that it is not as straightforward as you would hope.
Takeaways
Hence, the takeaways:
- Administration – clearly there is more administrative hassles with setting up a limited company, but the complexities may not exist where you think. It is important to do your research.
- Motivations matter – There are advantages and disadvantages, so truly depends on what your motivations are, whether being a sole trader or incorporating a separate legal entity, a limited company is right for you.
- Choosing smart – Finally, there is clearly something about knowing which banks are truly start-up friendly and it is a lot more nuanced than traditional versus newer challenger banks. So, do the research as relevant for your jurisdiction.
As I reflect on this experience, I am reminded of the importance of perseverance, adaptability, and the willingness to embrace change as even these tasks can provide invaluable lessons and unexpected hiccups. I am still really enjoying the portfolio career journey, but now happy that most of the key setup things are now done and I can concentrate on the fun stuff! Stay tuned for more.
