Thinking about starting a "business"

[dangerstat]

Hi all,

A couple of questions for you to mull over about starting a business. It's a while since I've done my degree so I'm not sure on some of the detail.

Basically I want to sell (A) a piece of software which is similar to a existing product but at roughly 30% of the cost, and is built out of GNU components (B) "properly" make some web apps available that I've been developing for a while. I want to stay working full time and sell the software with "ad-hoc" support only.

Now I could go down the route of "sole trader" right, but then I'd be liable, say if the software I sold infringed on some copyright (which I don't think it does). So I was thinking Ltd company would be the best way. What kind of costs are associated with (A) with setting up a company in this form and (B) annual costs for maintaining it (In terms of do I need to produce accounts, how much would that cost?).

Thanks

Dangerstat

 

[dangerstat]

If you create a limited company then you do need to create accounts yearly and you'll need to register with Companies House (website here). The cost of accounts will vary in part according to the size of your business. Have you got any sort of a business plan? It isn't a great plan normally to just throw yourself into a business without a plan, banks are unlikely to lend you money for a start. Have you considered visiting your local small business/entrepreneurial centre?

Thanks Semi-pro. Yes I do have a plan, but I actually don't need to loan any funds for this I think. On the web side my "plan" is quite simply to send the software off to relevant magazines / publications to see if they will review it and just sell it online via download. On the web side I'm not actually looking to make money from it in the need to medium future, and the "only" associated costs would be getting a managed server (which should only come to about £100 PCM so I can afford that).

I have considered going to my local business center here, but to be honest I'm just about to move. In the past I've chatted to people at those KMPG (or some accountancy company) young entrepreneur events so I've got a rough idea of how to proceed. My biggest concerns are over data retention (if my web server got hacked and someone half inched all my users details) and the copyright stuff, really need to figure out if someone sued, it'd be the company and not me if that makes sense.

 

[dangerstat]

The intellectual property rights could be a can of worms, how are you seeking advice on the area?

Don’t know whether this can help: http://www.ipo.gov.uk/

No not at all what do you mean? I don't think it's possible that they could have copyrighted their software in terms of generic type, just like you couldn't copy right the idea of an operating system or a word processor. I think they only issue (looking at the lisence of the freebie software it uses) is that I must quote their lisence in my code too?

 

[dangerstat]

I assume in your "plan" to start a "business" you have checked against the GPL for the code you wish to "borrow" to make your "fortune?"

I doubt you will need to go Limited unless you think your idea will be prone to people filing lawsuits against you and if it is then maybe you shouldn't bother.

Yes just posted on this actually their the software is fine to be included in a commercial application, in reality I could code all but one of the elements myself but it'd just take another couple of months to do. I think the company which would be my main rival would consider filing against me if I got a decent (2000+ plus I recon) sales, as it'd be targeting their main flagship product


EDIT on Freebie software bits. Essentially the main component that I can't "do with out" is he h2 database engine, it's right at the core of my application before I chose it, I did check the license and it appears fine for me to include it in a commerical application, if someone could prove otherwise it'd be very very very much appreciated
http://www.h2database.com/html/license.html

 

[dangerstat]

£20 to incorporate for the standard service and further costs to obtain articles and memorandum. However I *think* you can just put something like "retailer of software" and use the standard articles.

Regarding whether it's worth becoming a limited company, the reporting requirements for a very small business are so minimal that anyone with a limited knowledge of accountancy and business could easily do it themselves. You probably only need to file a balance sheet every year for very low turnovers.

Edit:

3. What does a small or medium-sized company have to deliver to the Registrar?

The company can deliver the accounts which were prepared for its members under the special provisions of part VII of the Companies Act 1985, or it can deliver an abbreviated version of these accounts.

Abbreviated accounts of a small company must include:
the abbreviated balance sheet and notes; and
a special auditor's report (unless the company is also claiming audit exemption - see chapters 4 and 5).
You can now file small abbreviated audit exempt accounts using our Software Filing or WebFiling services. Please refer to our website www.companieshouse.gov.uk for more information.

http://www.companieshouse.gov.uk/about/gbhtml/gba3.shtml#three

Cheers for that edit, so a simple case of balance sheet and it's done online too! Can't see me needing to be audited as I'm not exactly going to be having a 5.6 Million turnover - would be nice if I did though

 

[dangerstat]

Stop right there...you need to know that it doesn't infringe on copyright before you proceed any further - research research research!

To try and create a business, potentially a brand (if it's successful) and a reputation based on something that could cause you to be sued for all you are worth is madness.

Get that sorted before you do anything else, then you can proceed without having to worry about losing it all.

I'm not really concerned about loosing anything I put into the company, I'd be surprised if it was successful. My *best* one year forecast would be to sell 200 copies of the software at £415, which is would be selling at under 20% of the cost of my would be rival so it's there's nothing really for me to lose. If my company was limited they could only sue it and not me.

I've had a quick look and it seems like you can make commercial applications with it which is great for your purposes, however you've got to acknowledge the H2 source and where/if you change the source code you've got to supply the source code with changes for anything that is covered (i.e. the H2 source and the modifications you make to it, the other parts of your software you do not have to reveal it would appear).

I've not altered any of their code in anyway what so ever, I'm essentially using it as a free alternative to a more professional piece of kit like Oracle.

 

[dangerstat]

So your basically selling someone else's product without adding anything at all to it yourself?

H2 is just a component that handles storing / sorting / retrieving the data that my application works with. The rival's product is slower, more memory intensive and not cross platform that's just a few of it's perks, in pretty much every way (bar support) my product is far better. It's a case of they've been really lazy and not made any real improvements to their software for years, so they're ripe for a bit of commercial butt loving

 

[dangerstat]

Right...I really don't think you've thought this through...maybe you know the programming side but I think your business accumen is letting you down a bit.

How much do you think it costs to setup and run a Ltd?

How much paperwork do you think is involved in managing an Ltd?

An Ltd may be a separate entity and you are an employee of it but you are still the MD and sole employee - you can't hide behind the company, it's not the company that would infringe copyright - it's YOU.

If you are only going to make small potatoes from it...what's the point?

Have you considered marketing and advertising? How are you going to let people know what you do?

I'm sorry but this seems a little harsh. To set up the Ltd company I'd expect it to cost less than £250, and reading through the content on the on the companies house website there seems no reason I could not do the majority it myself with the help of my brother-on-law who runs his own business too.
In terms of paper work, as Robbie G's post points out all that seems necessary for a small company like this would be balance sheet with suitable notes.

If I did achieve sales of 200 copies (which I don't think is a massively high predication) that'd be £83,000 which is not small potatos to me at least.

In terms of marketing, like I say, there are several niece publications that review software of this type, that'd would be my starting point. If that generated some decent sales I'd consider running adverts in those publications regularly.

I think if this was a traditional type of business I'd never even contemplate doing it whilst working full time. With this, maybe I am being naieve, but the "bulk of the work" (I've been developing this for about 2 years) has been done

I do not understand your comments on it would be "ME" violating the copyright, in fact I think you can indeed "hide behind a company" in this way. In all honestly I don't believe I would be violating any copyright. But it's a risk I'd rather hedge against.

Edit because of your edit lol In terms of would considerations from the customers PoV. Personally I think (no in fact I know some are) they are annoyed at this particularly company for a complete lack of innovation of their product, and the fact that the cost of it bares absolutely no correlation to either it's quality or associated development cost. I'm 100% convinced it's better, cheaper and more useful that the rival's product, and I guess in the current climate businesses should welcome it with open arms. The only area it would be let down is in support which I could only do by email and out of working hours, but you never know if it took off then I'd look at different options.

 

[dangerstat]

My apologies for the small potatoes comment, £83,000 is in no way a tiddily amount of moolah, I read the figures on your initial post wrong

Don't get me wrong, I'm not trying to be harsh, what I'm trying to say to you is, if you want to do it then go for it!
But go for it in the right way, you could be onto something big (who knows?), it could make you a really decent income, and could continue to for some years if done correctly.

It would be a real shame if a year or two down the line you had been run out of Dodge because you hadn't covered all your bases to start with.

Hiding behind the company isn't good business practice should anything go wrong, and I'm also not sure that you can...what I mean is, the company is a legal entity in it's own right but someone has to be pulling the strings - you.

For example, it is my understanding that if a company (for example) copies a wedding photograph for a customer that is clearly labelled as copyrighted by the photographer, and the photographer sues the company, the the company is liable to pay the photographer up to £25,000, but the employee who scanned the image in the first place is also personally liable for £5,000 for breaching copyright.

This is what I was told when working in imaging a few years ago - that's what I mean by not hiding behind the company.

Also you name becomes a matter of public record at Companies House if you are a director of an Ltd...so hiding behind it or not...you will still be known.

No worries. Actually, scrap any concerns I have over copyright / IP (as I know it can't be now).

I appreciate the advice, and I understand what you are saying totally, I might look into how much a solicitor would cost to set up a ltd on my behalf but I'm guessing it'll be approaching something like £1000 or maybe more

 

[dangerstat]

Thanks for the replies. My concern of the legal issues are completely and utter unfounded it turns out. So at the end of the day, my product is better, 20% of the cost and has no "yearly license" cost. I think I might put some effort into a more formal business plan, but I'm struggling to see any major problems with my approach.

I'm not worried at people seeing how badly / well my endeavor goes one bit. Out of interest, say I use my dad as the "other partner" does he have to have a percentage of the company's shares?

 

[dangerstat]

Great news on the legal issues - full steam ahead!

As far as I'm aware the rules regarding Ltds have changed now, and you can now set one up with just one person - it always used to be in one man band Ltds that (for example) the hubby would be the MD and the wife would be the other shareholder and generally listed as secretary, I don't think that's the case anymore.

If you are wanting help through the whole procedure (which I would highly recommend to avoid pitfalls and help you save paying over the odds with tax etc. you don't need a solicitor, just an accountant.
Where abouts are you based? If you are in the North West I can recommend a top bod for you.

Yep!

Thanks for those details, that sounds like a sensible move, like you point out lots of ltd's are really one man bands I guess. I've got a few friends who are in the "big four" I think I'll drop one of them a call and see if they'd be able to help out in exchange for beers. I'm based in the South West unfortunately.

 

[dangerstat]

How much bandwidth do you have available?

It's an obvious thing, but the more popular the download is.. the higher your bandwidth costs because of increased downloads.

I can't see me selling more than 200 copies in the first year. The hope is (OP) to get a hosted server for my web app stuff so I guess bandwidth should be okay, good point though

Are you not able to say who / what you are taking on? I'm guessing it's a fairly niche market most of us have never heard of but it's be nice to google it anyway

Google "*******" EDIT and it's their main product. It's pretty niche. I'll edit this out in a minute so please don't quote it