Which business structure will prove best for your aesthetic business?

When you start your own aesthetic business, there are several things to take into consideration which fits into your budget. One of the most important decisions to make is which business structure to choose for your business. This will also help you to determine the tax which you will be paying for your business in future.

In order to decide which structure will work best for your business, here is an overview of some of the well-known business structures.

Sole trader

As the name indicates, sole trader is a business that is operated by a single person. He solely operates the business with complete authority, take all decisions and responsibility. Due to its small size it can also be referred to as the ‘micro business structure’. Numerous skilled tradesmen like plumbers, electricians, carpenters etc use this structure to operate their businesses.

In this structure, yearly account of sales, profits and expenses is conducted for the income tax and insurance. If the annual turnover of business exceeds the limit set by HMRC, you need to pay the VAT as well.

Pros and cons

Some of the pros and cons of this structure are following:

• Complete control and authority: you will have complete authority over the operations of the business, it’s planning, expansion of size and the rate at which you wish to expand it. However, there are certain pitfalls for this approach because you will be solely liable for all the business ups and downs and other liabilities.
• Easy set up: if you wish to open your independent aesthetic clinic, the process is quick and easy to set up. You only need to inform the Inland Revenue within 3 months of setting up that you are solely operating a business. If you fail to do so within time it would result in charges and penalties.
• Less start-up cost and regulations: as compared to other types of business structures, the start-up cost is less. You only need registration with the Inland Revenue for each financial year. All your financial information remains private with you and you do not need to register your company each year as with other limited companies.
• No need for management or staffing: as you will be working independently, the profits will remain with you. Although it sounds great but it also has a drawback. In case you need to go on a vacation or become ill, you need to take off from work which means that your business will remain close for that period. So you have to keep some funds aside for such emergency situations.
• Low costs of accounting: Due to less accounts and taxation related work your cost of accounting services tends to be less. You need to maintain a profits, accounts and cash flow statements for the accountants to check and to manage your business cash flow on regular basis.

Partnership

This business is based on the partnership between two or more than two persons. Each partner in the business shares the same level of authority to operate the business and equally involves in the day to day activities of the business. Every partner in the business is held equally responsible for any decision regarding the business as well as for profits and loss.

Partnership business can be developed with anyone, but it is highly recommended that you have a proper partnership contract created by a lawyer which should be signed by each partner and a business agreement can also be developed in case someone intend to leave the business partnership in future.

Pros and Cons

Some of the pros and cons of partnership structure are following:

• Can be easily established: it is quite easy to create a partnership but better if created with like minded people in the same profession such as two or more aesthetic practitioners can create a partnership to operate aesthetic clinic. You need to ensure that in partnership everyone should have clear directions regarding their roles. The best way is to develop a partnership agreement which specify which course of action to adopt in certain circumstances.
• Funds can be raised easily: the partners can contribute their own funds which increases the funds for the business. The profits then need to be split equally or according to the decided percentage in accordance with their contributed funds. However, there can be tension among the partners if one invested more time than the others so this is required to be taken into account while setting up a partnership.
• Diverse skills set: every partner in the business has his/her own skill set and strengths which will be great for moving the business forward. For instance, one of the cosmetic practitioners can have better skills at administering injectable treatments while other is better at performing non-surgical PDO threadlift treatment or nose job. But you need to take into consideration that one or the other partner may not want to take risks which can decrease the business flexibility and slow down the process of decision making.

Limited companies

In this type of business model, you can keep your personal assets and finances separate from your business while having a separate bank account for that. This implies that at any stage if business is in the situation that requires termination, then you do not need to use your personal finances to pay the outstanding debts.

You can choose from two kinds of limited companies:

• Public Limited Company (PLC): these are enlisted in the stock exchange and the public is allowed to buy its shares. The profits and losses made during business are made public in the stock exchange. At least two directors are required to operate a public limited company and it is usually for very large scale businesses with a turnover of £20 million or more.
• Private Limited Company (LTD): In this the shares are not traded publically and can be operated by a single director. This type of business is usually family operated or business partners can also get the protection of limited company to achieve security over partnership.

The Private as well as Public Limited companies need registration with the Companies House in order to legally start the business. The company will need to pay the taxes for its trading profits on products and services its offering and the profit dividend will be paid to the public share holders.

Pros and Cons

• Provides financial security: this business model provides financial security as the directors do not need to pay any liabilities or debts out of their own pocket. Whatever debt will be incurred it will be paid by all the share holders according to their levels of investment. In case of limited company, there are certain restrictions on the selling of shares for raising the capital for business as it will only be available if anyone wishes to invest in the shares.
• Exists as separate entity: one of the biggest plus point of this business model is that, the limited companies can exist and operate as a separate distinct entity. Employees also have job security but sometimes dispute can arise between the directors or share holders regarding decision making for the company.
• Do not always require office site: when you start off your limited company, you may not need a big space to operate the business until you expand it. You can even operate it from your own premises or house while claiming the cost of electricity, heating and other bills from your company. But you should keep in mind that the limited company accounting and record keeping is much more complicated, time consuming and need expert advice and is essential.
• Authority and ownership: The main stakeholders of limited companies are the Directors of the company which means that the authority and ownership lies in their hands. This means that quick and effective decisions can be made but it can also make the decision making process difficult due to certain obstacles and unforeseen circumstances. Disputes can even occur between the directors as well as share holders regarding the decisions about the company. The increasing number of investors means more people involved in decision making process thus slowing down the decision making process.

How to make the right decision for your aesthetic business?

There can be no right or wrong decision when it comes to deciding about the business structure as it depends on the individual circumstances, how you wish to grow your business and how much effort you are ready to make for it.  Every business model has its own pros and cons so in order to make the right decision, you should;

• Do lots of market research: about all the business structures and create understanding about all the business models which will help you to make the right choice.
• Seek professional advice: if you have lots of information but still not able to decide which business structure to choose, it’s better to seek professional advice to choose the best option.