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Top tips for tech start-ups

London – it is one of the best places in the world to start or build a tech business. According to Tech Nation’s 2018 report, the digital tech sector is worth nearly £184 billion to UK economy. And it’s growing at a faster pace than the rest of the UK economy.

But let’s not get carried away. It is estimated that 90 per cent of startups fail. So how can our entrepreneurs that innovate our market, stay in our market? There’s more to it than just a good product and a well-defined market. Here are some top tips:

Set up the right business structure

Will you trade as a limited company, a sole trader or maybe start a partnership? There’s no right or wrong here. It ultimately depends on your objectives.

The structure will ultimately determine your tax position, your responsibilities as a business owner and your asset protection. Business structuring doesn’t have to be complicated to be effective. Keep it simple – and fit for purpose.

Contract with your business partner

It is important to regulate your relationship with your business partner. If you have set up a limited company, you may think the Articles of Association (a public document that provides for the written rules of the company and how it is run, managed and owned) is sufficient.

But you would be advised to go further (particularly where you may only own a minority stake), and prepare a Shareholders Agreement. Shareholders Agreements usually provide more intricate detail than the Articles, predominantly because they are a private document.

Written Contracts

We have discussed the importance of contracting with your business partner. Having written contracts with your employees, freelance consultants, customers and suppliers is also a key part of the document foundation for any scale up. Written contracts provide certainty by setting out all applicable terms and conditions relating to that subject matter (irrespective of what was said or promised outside the contract).

For example, agree in a customer contract the start and end date of the contract. Recurring revenue is key for a tech business, and without an agreed contract period, your customer may be able to terminate the contract on reasonable notice, which would dent the recurring revenue of the business.

Intellectual Property (often abbreviated as “IP”)

If you have created some new IP, check if it can be protected. IP is often the most valuable asset of a tech business and is often the most important asset for M&A deals in the tech space. It can also provide you with a source of revenue through licensing. IP can take many different forms and not every piece of IP can be protected.

Be aware of some traps – for example, public disclosure of an invention can extinguish your right to protect an invention. If in doubt, seek advice.

Manage your Cashflow

Cashflow is the number one reason why businesses fail and it is no different to a tech business. Don’t overspend, manage your expenses carefully and keep a cash reserve for any exceptional or non-recurring expenses.

Keep your current investors happy – you never know when you may need to ask them to write another cheque.

This article was first published by Computing Magazine on 10 June 2019.

For further advice in respect of preparing your business for potential investment, please call 020 7870 3878 or contact Kyri Papantoniou.