Susie Mortonson, Corporate and Commercial Partner at Harrowells Solicitors gives advice on how not to derail your plans for diversification

During the pandemic, businesses have had to adapt quickly to the ever-changing circumstances.

Plenty of businesses have managed this by diversifying - whether that is creating an online shop, letting out part of a property or changing the products sold or services offered. If this is an option you are considering, it is advisable to take legal and tax advice to avoid any potential pitfalls that may derail your plans.

Risk management is really important when diversifying a business. If you trade through a company, one option is to create a new, separate, company for the new opportunity to separate the risk.

If you are a farmer, for example, and you want to start selling your produce online, you could set up a new company for your online shop and then it will not affect your day-to-day farming business.

The risk is ring-fenced, as is any specific finance, employees or contractual arrangements relating to the diversification.

An existing partnership could be less straight forward because you may need to alter your current agreement to suit the new business, and may require the agreement of others.

One way of diversifying is to bring your skills and experience together with another person who is not involved in your existing business. This is known as a joint venture. You could set up a partnership, company or simply have a contract in place with the other party to set out how you run the joint venture. We would always recommend taking advice about which structure is best for you.

Another key consideration before you put your plans into action, would be to review your contracts with your customers and suppliers, also known as your terms and conditions. These should be bespoke to your business and suit your business needs.

Thought should be given to whether your business needs a separate set of terms and conditions for the new area or whether your existing contracts are suitable for both existing and new businesses.

Diversifying your business will hopefully lead to new opportunities and growth. Therefore, before pressing go, we would also recommend speaking to an accountant to make sure the individual and business tax implications are considered, so you do not have any surprises when it is time to file your accounts or do your self-assessment!

When diversifying the first thing that springs to most people’s mind is, will my idea be profitable and if so, can I afford to go ahead? You should also look at your existing funding arrangements and whether these are fit for purpose. Will you need to borrow more to fund the new business? You may also have an existing agreement which requires you to ask for consent from your bank to make any material changes to your business.

Lastly, succession planning is a vital, but often overlooked consideration when developing your business.

Do you have the right provisions in place if the worst should happen? For example, if you plan to pass the family farm on to your children, has it been considered as to how to legally pass this onto the next generation in a tax-efficient manner and at what point could or should this take place.

Taking legal and financial advice before ploughing ahead with any diversification will only be advantageous to your business and reduce the risks associated with any new venture.

For more information contact Harrowells Solicitors on 01653 919 998 or go to