Future food stars – key considerations for new hospitality ventures

Since the beginning of the COVID-19 pandemic many hospitality and tourism businesses have been hit hard and have struggled, most notably the likes of pubs and restaurants who were forced to remain closed for so long. Thankfully this is not the case for many food and drink businesses. 

In fact the pandemic has acted as a springboard for many food and drink businesses, many of which have been able to flourish. There has been a marked increase in those who have turned their hobbies into their new business, and small businesses that have grown exponentially into very successful thriving businesses. This has not only been as a result of people being stuck at home and finding a renewed love of cooking (and eating) but by a renewed enthusiasm to buy local and support the smaller independent producers. 

As well as a new wealth of local farm shops, online farmers’ markets and even farm food delivery services which have thrived (even after the lockdowns ended), we have also seen extraordinary growth in the food and drink gifting market. 

When we think of sending a gift to a loved one, our first thought is no longer to send a bouquet of flowers. The options now seem endless. From a bouquet of chocolate bars, to letterbox brownies, a selection of cocktails, or even a home marshmallow toasting kit.  According to thegrocer.co.uk “in 2021 online searches for food gifts increased 427% in 2020. Googling for baking gifts more than doubled, making it the “most significant rising gift trend of the year”, with 6,600 purchases made per month. Booze – already a popular posted gift – saw searches rise 10%. Some 33,000 people were buying gin gift sets alone every month.

All this growth has seen hundreds of new start-up businesses and the rapid growth of smaller business. When a business is growing that fast, it is easy to get swept up in the sales and growth without making sure the business itself is set up in the right way to secure longevity. 

There are many important factors for business owners to consider. The first and most obvious being what is the correct trading vehicle? That choice is typically whether to trade as a sole trader, partnership, limited company or limited liability partners (LLP). Whilst many will start out, by default, as sole traders or partnerships as there are no inherent expenses or filing requirements, the value of limiting a business owner’s liability should not be underestimated. 

If there is more than one person at the helm of the business it is also important to consider what each party will be contributing (both financially and commercially) and how the equity should be split to reflect this. Doing this after the company has grown in value can be both expensive, inefficient from a tax perspective and even acrimonious. All too often these types of businesses are started between friends or family, who believe it is ok to do things informally until “things get going” as there is no chance of a fall out. Unfortunately, quite often a fall out is exactly where it ends up and this can often lead to the end of a potentially successful business. In other words, fail to prepare and you prepare to fail. A shareholders’ agreement (or the equivalent depending on the business model) is worth the investment at the outset to set out the parameters of the relationships so that parties all know exactly where they stand. 

Owners also need to ensure that they are protecting their assets, such as their branding, trade marks and other intellectual property (IP) rights. We have all seen the knock off Penguins and heard about the copycat Colin the Caterpillar cakes. Branding is often what makes a product and it is worth protecting. It is important to ensure that the business owns its IP and that the value of the brand is considered. Registering a trade mark is an expense which quite often is not done at the outset as there always seems to be more important things for which business owners will prioritise expenditure. However, the later steps are taken to protect the IP, the harder it may potentially be to protect. Moreover, if the business is successful its IP may well be the most valuable asset the company has. 

In addition to the above considerations, ensuring the business has the right contracts or terms of business in place, finding the right premises and then protecting your right to be there if the site is key to your business and ensuring you comply with employment laws are all very important. Although this sounds like a daunting (and potentially expensive!) ‘to do’ list, good solicitors understand the financial pressures on new/growing businesses and understand that costs must be kept proportionate to the gain. That is why it is worth seeking good legal advice from the very beginning so that your solicitor can guide you as to where your focus should be and help the business grow in a sustainable, yet protected manner. 

At Birketts we regularly work with business owners from all stages of their growth journey and we have a full suite of specialists to be able to assist you. If we can be of assistance in your journey then please do let us know.