c

BA Honours in Creative Music Production ±

Enterprise
Introduction
This is a report into the start -up of a recording studio and record label
business. There are already pre -existing premises for the business and
£10,000 in the bank but another £5,000 is needed.

Relevant European and UK legislation related to th e setting up and

running of a business

When setting up a business one of the first things you need to do is to choose
your legal structure. This means you have to have to decide which type of
business you are going to be in the eyes of the law and tax office. Stokes and
Wilson (2006) give the four main legal forms possible for a small firm as ³ Y

 
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   è (Stokes and Wilson,
2006 pg.239). When starting a business on your own you can start it as a
limited company or as a sole trader. When starting the business with other
people you can start it as a limited company, partnership or a co -operative.

It is relatively easy to set up a business as a sole trader as you don¶t need to

pay any registration fees but you do need to register with HM Revenue &
Customs (HMRC) as being self-employed. Being a sole trader means you get
to make all the decisions and run the business how you want to run it. One
positive of being a sole trader is that you get to keep all of your profits; profits
are taxed as income and national insurance contributions have to be paid on
them too. One of the disadvantages is that you are personally liable for the
business. This means that any debt run up by your business is your debt and
you can lose your home and other assets if you r business is failing (Business
Link http://goo.gl/LYG6A accessed 20 /1/11). Annual self -assessment tax
returns must be completed and sent to HMRC and records of income and
expenses must be kept. If the business name is different from your own then
you should show your full name and address as proprietor on all of your

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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business stationery (Baxter, 2010 pg.2). Appendix 1 shows advantages and

disadvantages of being a sole trader.

Entering into a partnership is similar to that of the sole trader but there is more
than one of you. Liability is now shared between each partner and creditors
can take any partner¶s personal assets to pay off the company debts, even if
another partner runs up the debts. Self -assessment tax returns should be
completed for each partner as well as the partnership itself. In partnerships
exist the two terms jointly and severally liable. Joi ntly liable means each
partner is equally responsible for paying off the whole debt and severally
liable means that each partner is responsible for paying the whole debt. In
England, Wales and Northern Ireland partners are jointly liable; in Scotland
they are jointly and severally liable (Business Link http://goo.gl/s21Hf
accessed 20/1/11). Appendix 1 shows advantages and disadvantages of
forming a partnership.

If you wish to protect your self from liability you can set the business up as a
limited company. This means that the company is the legal entity and the
finances of the company are separate from that of the owners. This doesn¶t
mean that you are entirely safe though as you can still lose a ny money
invested in the business and directors may have to give a personal guarantee
to secure external finance (Business Link http://goo.gl/OjzKAaccessed
21/1/11). There are three main types, private limited companies, public limited
companies and private unlimited companies. Limited companies are not as
easy to set up and you need a solicitor to help you set it up. The setting up
involves registering the company with Companies House and drawing up a
µmemorandum and articles of association.¶ This is basically the details of the
business including the company name and address, objectives of the
business, nominal capital, limitation of liability, names of members and their
share of equity, powers of directors and the voting rights (BAXTER, 2010
pg.4). The accounts for the company have to be externally audited and th ese
too have to be sent to Companies House where t hey are kept on public
record. People can be put off starting a limited company because of the
amount of administration that there is to do and the cost. This can be

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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lessened though by buying a business that has already been registered and
set-up legally. Appendix 1 shows advantages and disadvantages of forming a
limited company.

The final business type mentioned above is a co -operative. A co-operative is

a business that is owned and controlled by the employees who work in it.
Because it is owned by the people working in it it is often found that the
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è (Stokes and Wilson, 2006 pg.307). There has to be a minimum of
seven people to form a co-operative so it is not of any use to this business.

Currently the plan is to have just one person working for the business but this
is likely to change with growth. When employing people there is employment
legislation that should be con formed to and this will include pay, minimum
wage, employment contracts and conditions, flexible working, sickness
absence, time off and holidays and working hours
(http://www.direct.gov.uk/en/Employment/Employees/index.htm accessed
23/1/11). Once you start employing people you need to inform the HMRC if
they are earning enough to pay tax or National Insurance, have another job or
are receiving employee benefits, so that the correct tax is being paid. You
also need to register if you are running a one -person limited company, as you
are an employee of the company (http://goo.gl/4bk64 accessed 23/1/11).

—urrent and relevant government policies and initiatives supporting

SMEs
Small and Medium Enterprises are enterprises that employ 249 people or
less. This can be broken down further into further categories as shown by this
table produced by the European Commission (EC).

Enterprise category Headcount Turnover or Balance sheet total

medium-sized < 250 ” ¼ 50 million ” ¼ 43 million

small < 50 ” ¼ 10 million ” ¼ 10 million

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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micro < 10 ” ¼ 2 million ” ¼ 2 million

(http://ec.europa.eu/enterprise/policies/sme/facts -figures-analysis/sme-
definition/index_en.htm accessed 7/1/11 )

Figures published by the UK Department for Business Innovation and Skills

(BIS) in 2010 show that in 2009 there were in excess of 4.9 million enterprises
in the whole UK economy and SMEs accounted for 99.6% of them. SMEs are
extremely important for the economy as there are so many of them and they
constitute 48.5% of the UKs employment. Stokes and Wilson (2006) state,
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è (Stokes and Wilson, 2006 pg.154). The government has many
different policies and initiatives to encourage growth in this sector because of
the importance of them. These are categorised into three main areas by
Stokes and Wilson (2006 pg.154):

á Financial Assistance
á Lightening of Tax and Administration Load
á Information and Advice

Financial assistance includes helping businesses start -up as well as develop.

One such initiative that is relevant to this is the Enterprise Finance Guarantee.
The EFG is ³


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è (www.bis.gov.uk/policies/enterprise-and-business-
support/access-to-finance/enterprise-finance-guarantee accessed 7/1/11).
This scheme is relevant to this business as it is a viable business but neither it
nor the owner lack collateral that a bank would require to enable them to lend
money. Commenting on the EFG in Y 


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James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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(www.musicweek.com/story.asp?sectioncode=1&storycode=1043744
accessed 12/1/11)

To encourage entrepreneurship and support SMEsthe government has a

variety of tax reliefs and allowances. Business Link
(www.businesslink.gov.uk/bdotg/action/detail?itemId=1073791420&lang=en&
site=101&type=RESOURCES accessed 12/1/11) lists these as:

á Regional Employer National Insurance contributions (NICs) holiday for

new businesses
á Capital allowances available to all businesses
á Equipment lent to employees
á Tax relief and credits for research and development
á Enterprise investment scheme ± providing tax relief for investors

The most useful of these is the ab ility to claim for capital allowances. A capital
allowance means that you can claim money back against equipment that you
buy for use in your business. This is extremely useful for setting up a
recording studio as you will be able to claim money back on essential
equipment such as microphones, and mixing consoles. It also allows you to
claim back money on equipment for your business that you already own. The
advantage of this is that when setting up a recording studio you are likely to
already own some of the equipment needed. Currently the main rate for
capital allowances is 20% but this will reduce to 18% from April 2012 in
accordance with the Government Budget 2010 (appendix item 2). The budget
also outlines a reduction in corporation tax from 28% to 24% over 4 years
from April 2011, although this would only be useful for this business if it is
decided to set it up as a limited company.

Another of the above allowances that could be useful is that tax and NIC are
not payable on equipment that is lent to employees. This allowance could be
used, in the case of the recording studio, to equip staff (if or when any are
hired) with computers to enable them to do some work at home.

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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The NIC holiday is aimed at certain regions of the country to encourage

businesses to start up there. Unfortunately the South East is not one of these
regions and so it is not of much use to this business.

Bureaucracy and red tape is a problem to SMEs so the UK Government policy

is to try and remove as much as this as possible.One such policy is the Better
Regulations Policy, which the BIS states as being ³  

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(www.bis.gov.uk/policies/better-regulation/policy/simplifying-existing-
regulations accessed 11/1/11). Administrative burdens can be something as
simple as having to fill in lots of forms for a simple task, which may end up
costing the business money. Another policyis the µThink Small First¶ policy.
This policy aims to cut red tape by making sure that any legislation takes into
account the interests of SMEs early in the process so that the legislation is
SME friendly. The µThink Small First¶ policy also encourages government
bodies to utilise SMEs to get value for money. In 2005 the Office of
Government Commerce published a booklet entitled 


&'
(
)giving guidelines as to how to make use of SMEs in areas such as
public sector contracting. As well as red tape from the UK Government there
is also worry over legislation and regulations f rom the EC. To combat this the
EC set up the SME Task Force to ³Y
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Stokes and Wilson (2006) give examples of how legislation is adapted for
small businesses; being exempt from some responsibilities of the Disability
Discrimination Act (DDA) (1995) if they have less than 15 employees and
businesses with less than 5 employees do not have to have a written safety
policy for the Health and Safety at Work Act (HASWA) (1974). These policies
are relevant to setting up a recording studio and record company as in a
recording studio you have to work with the public and they will be on your
premises so you must comply with a lot of regulations including fire
regulations and those already mentioned above.

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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The final area of the three specified by Stokes and Wilson (2006) is
Information and advice. The foremost service for this is Business Link, which
is a government-funded service that offers advice and guidance to businesses
in England. The service provided by Business Link is extremely
comprehensive and covers every aspect of business but they also have
specific sections of knowledge for starting up or growing a business. Scotland,
Wales and Northern Island each have their own equivalent of Business Link.

he personal qualities and qualifications needed to succeed as an

entrepreneur in the music sector
When starting up a record label and recording studio there aren¶t any
particular qualifications you need although having studied the music industry
will be a huge advantage to you. What are more important are your personal
qualities.This is a list of traits that are thought of as useful/essential for
becoming a success entrepreneur:

á Energetic á Resourceful
á Creative á Likeable
á Competent á Innovative
á Shrewd á Positive
á Ruthless á Diplomatic
á Likeable á Charismatic
á Self Belief á Visionary
á Opportunistic á Practical
á Bold/Brave á Responsive to criticism
á Determined á Decisive
á Adaptable á Confident
á Good timekeeper á Risk Taker

Although the above are widely regarded as being vital to be a successful

entrepreneur Delmar (2000) does not think this is 100% accurate.

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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³ 

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The above list is a list that is meant to be general to all businesses. One that
should be added to the list with the music business in mind is to be thick
skinned. The music industry, like most industries, can be extremely
competitive and it is also notoriously fickle. Pattenden (2004) notes,

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he planning process for starting a new venture

When starting out on a new business venture the first thing you s hould do is
to start planning. You should create a business plan and a strategic plan. A
business plan should contain information about the business including its
objectives, the market for your business, development of the business and
financial forecasts. It is effectively research into your business idea. Most
often people will create a business plan so that they have something to show
the bank manager or potential investors so they can get finance but they
should also be used for the owners benefit to h elp them focus on certain
aspects of the business, structure the business correctly and spot any
problems and pitfalls before they arise. The business plan should also
highlight risks and liabilities and the potential profit and success. The strategic
plan is geared more towards the long -term aims of the businessand where it
is heading. A SWOT analysis should be included to ascertain the Strengths
Weaknesses Opportunities and Threats to the business.

How small businesses can be funded

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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Small businesses such as this one can be funded by the following means,

Internal Finance External Finance

á Personal investment á Debt finance
á Business profits á External equity finance
á Leasing/Hire purchase
á Invoice Finance

Internal finance is funding put into the business by the entrepreneur/owner.

Internal finance is nearly always needed especially if you are also going to try
and persuade others to invest money in you. They will want to see you µput
your money where your mouth is¶ and show that you have an incentive to
make the business work. Some of the profits from the business will also have
to be invested back into the business for growth.

External finance is finance accessed from outside the company. Typically,

debt finance would be a loan from a bank or an overdraft. Banks normally
require you to have some collateral or assetsto use as security for you to take
a loan out. Proper business plans and cash flow p rojections are usually also
needed. If the business doesn¶t ha ve enough security or no financial track
record this is where the Enterprise Finance Guarantee explored previously
would be needed.

For low-level investment such as this business external equity finance can be
acquired from friends, families or other people such as µbusiness angels¶.
Smith (2006) describes these as ³ 




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2006 pg.62). For their investment the investor would e xpect a relevant or pre-
agreed share of profits.

Instead of purchasing equipment they need , small firms may prefer to hire or
lease the equipment. This is useful if the initial cost of equipment neede d for
start-up is too high.

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

 c

This business has two parts to it, the first being the recording studio and the
second being the record label. When people use the recording studio facilities
the business is going to get a return quite quickly, usually on the same day as
the invoice is issued if paid in cash, but the record label side of the business
will have to wait to see a return as the process of releasing a song and waiting
for any royalties to come back form the various collection societies can be
months.This could be a problem so internal finance is probably going to be
needed by using profits from the recording studio to finance the label.

›arriers to growth and development

Small businesses face constant barriers to their growth. The barriers
themselves change during the life cycle of the business. The report  

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British Chamber of Commerce (BCC) outlines barriers to growth throughout
the life cycle of the business and at certain stages of its life.

Problems faced across the life cycle:

á Risk ± Businesses constantly take risks from the initial start -up to
employing people. ³RYY  
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á Access to finance
á Debt finance
á Business support
á Skills
á Tax
á Regulation
(BCC, 2008 pg.6-9)

First 12 months:
á Difficulties accessing business advice
á Availability of premises
á Marketing Skills

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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á Availability of credit
(BCC, 2008 pg.10)

Three years in:

á Employment law
á Recruitment difficulties
(BCC, 2008 pg.12)

Expansion Stage:
á Managing expertise
á Cash flow
á Tax and regulation
á Strategic direction
(BCC, 2008 pg.15)

The government policies mentioned earlier in this report are d esigned at

tackling all the above problems to growth but they do not always work. Failure
rates for businesses are high. Viney (2010) tells us ³

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states that of businesses that started in 2004 less than half of them were still
operating at the end of 2009. These businesses would have all faced the
barriers highlighted above and the f act that these barriers beat over half of
them shows that there still needs to be more done to help small business es
survive.

Strategies for surviving the early stages of business development and

how management may differ between small and larger organisations
As mentioned above, some of the barriers of development are managing
expertise, cash flow, and strategic direction . These points can be affected by
each other both positively and negatively; get one sorted and it could ease the
load on the others, leave it and it could make the others worse. Getting the

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

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cash flow sorted out should be a priority as without cash it is extremely hard to
survive.To survive business development it is important that the business is
running well, if the business is struggling then it is best to fix the problem
before expanding as you are just making the problem bigger. One way of
improving cash flow would be to hire a manager. An experienced manager
should be able to help sort out the cash flow and provide management
expertise and strategic direction, all three problems sorted out in one tidy,
albeit at a monetary cost, package. If the cash flow does not allow enough to
employ a manager it may be more cost effective to hire a consul tant who can
set you on the right path to being able to afford a full -time manager. This type
of outsourcing could also be used in other areas of the business,which would
help the business develop without necessarily hiring more staff.

The main difference in management between a small firm and a large firm is
that in a large firm the manager or managers are likely to be in charge of
certain areas of the business and they focus on their own tasks. ³ ,



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(Stokes and Wilson, 2006 pg.328). A manager in a small firm, typically an
owner-manager, has to deal with everything behind the scenes and still deal
with customers at the same time.

jolitical and ethical dilemmas and possible advantages of starting a

business during times of economic uncertainty
Although it may sound counter-intuitive, one of the best times to start a
business is in a recession or ti me of economic uncertainty. The first of the
reasons is because there is plenty of government help. The government has a
dilemma because when times are hard there are redundancies and this
means more people out of work and needing benefits from the state. To
encourage these people back into work they offer grants and loans for people
to start their own business. This is hard if the government is lacking money,
such as the current deficit of the UK Government ,but in the long term it is
better to help people into work than to support them whilst they are not

James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

 c 

working. An advantage of starting a business in a recession is that other

businesses are failing and leaving customers that need to find new places to
buy products and services and people are looking to sa ve money buy perhaps
switching from their old service providers to new ones that can offer better
value for money. It is also easier to get staff to work for you in times of
economic hardship as there are more people looking for jobs and you can pay
them the minimum wage. This is an economical dilemma as it makes
business sense to have low costs but it means your staff may be struggling to
get by on low money.

—onclusion
This report has covered a lot of important topics that should be looked at
when starting a business. It is geared towards the setting up of a recording
studio and record label business and as such I have tried including only
information that can be interpreted as being relevant to this particular
business model. All of the topics could be t he subject of individual reports
themselves and as such there may be some information missing that could
not be included within the scope of this report. Where further or more detailed
information is needed I have tried to include it as an appendix. For so me
topics, such as the legal structure of a business, I have only included the
details and possible advantages and disadvantages, as only the entrepreneur
setting up the business knows what may best suit their personal situation.

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James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011

 c 

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[ther

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YY/ 

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<
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James Whittlesea BA Hons ± Enterprise Assignment 1 January 2011