Birthing painsTHE CHALLENGE OF STARTING A NEW FIRM CAN BE FRAUGHT.

LINDA TSANG TRACES THE PANGS OF REBIRTH FROM THE BUSINESSS EMBRYONIC STAGE TO DEALING WITH TAX, IT, AND OVERTRADINGStarting a new firm can mean fresh challenges and new and old problems.

For some, having already established a record together and a relatively high...Starting a new firm can mean fresh challenges and new and old problems.

For some, having already established a record together and a relatively high profile can help to gain attention and to bring in work when a business is starting.

Louis Charalambous and Sarah Culshaw had worked together at top London media firm Stephens Innocent before it merged with Finers, and reunited last month to set up CCL, based in Old Street in London.

The profile of the firm was raised because one of Mr Charalambouss cases when the firm opened on 2 January 2001 was that of the Kurdish rebel leader Abdullah Ocalan in Strasbourg, where Turkeys death sentence against Ocalan was challenged at the European Court of Human Rights.

And Ms Culshaw is acting in a whistleblowing case against BUPA.

She says that apart from keeping the high profile they had at Stephens Innocent, being in control is part of the attraction for setting up in a smaller practice, and apart from the fact that it is a challenge, and an adventure, its quite exciting.In practical terms, she adds: You can never have enough forward-planning.

You have to think about location in our case, we did not want to be too far from the cathedrals of capitalism in the City.

And the business-plan has been working we are really pleased about the amount of work, goodwill and referrals

we have got.

What has been refreshing is the lack of bureaucracy and the fact that it is a good laugh.

But there are more serious matters, as Ms Culshaw explains: One of the main issues is that of IT, which is vital to any business.

You have to get an IT person and pay them a lot of money, and you become the lay person and the client, and have to believe what they are telling you, and what you are paying for.

Another new business that has had fewer problems with IT is Nottinghamshire-based v-lex, an incorporated law firm which launched last summer and set up an alliance of associated legal and non-legal IT specialists.

Duncan Campbell, formerly general counsel at IBM UK, and non-lawyer Barbara Diamond, a former director of major programmes at IT consultants Cap Gemini, are alliance members of the Worksop company.

It now has 19 lawyers, non-lawyers and support staff.

Solicitor John Yates, chief executive officer of v-lex, outlines how to sustain that business: The first priority is to build up an order book.

This is the same in any service business.

In fact, having said what is key to starting up a business, we had to start from scratch because we were subject to a restrictive covenant so we broke the golden rule.

The firm was started by a group of lawyers from Rotherham firm Oxley & Coward and it was the restrictive covenant that made Duncan and Barbara set up in Nottingh-amshire.In the case of Mr Yates and the other lawyers at v-lex, they had to generate opportunities and sell their services through their contacts, which he says is easier in the IT sector.

They spoke at seminars, and wrote articles to raise their profiles.He says: You have to assess those opportunities.

Some are long shots to be put on the backburner, others may be more immediate you have to do your research on their legal needs, and put forward a proposal on how you can service those needs.

The lead time on this activity from initial contact to doing chargeable time can typically be from three to six months.

People dont realise it takes so long.

For other start-ups, the benefit of being able to call on hefty resources is a big advantage and a relatively rare one.

Tite & Lewis set up as the law firm arm of Big Five accountancy firm Ernst & Young in May 2000, and has since trebled in size.

Managing partner Christopher Tite had already gone through a similar start-up process when he and Mark Lewis set up the legal arm of Coopers & Lybrand before it merged with Price Waterhouse.

Mr Tite says: There were fewer problems than other start-ups would have, but this is a matter of looking at the delivery of two levels of service: the straight up-and-down legal service and the integrated professional services within Ernst & Young.

And the advantage is that you dont carry the baggage of a traditional law firm its a greenfield site.

Its a chance to do much more than just blue-chip law, but to have the role of a more broadly-based business adviser.

But like any new business, whether you can call on the resources of a major firm or are borrowing by mortgaging your house, he says, you have to be prepared to invest in the business, and look ahead at least two or three years.

Mr Tite adds: You have to service business needs now and not starve it of resources.

And when you are looking to the future and to expansion, dont underestimate the amount of work involved in hiring people, we are averaging 80 interviews a month, and that is a huge time commitment.

And time has to be allocated for all business decisions, including using external advisers.

Mark Lee, lead tax partner in the professional practices group at BDO Stoy Hayward, says: You can outsource some of the payroll activities to accountants.

Generally, you should get a good accountant anyway, who is familiar with professional firm accounts and if you think you are too small, then get a good bookkeeper.

Getting the tax regime of a new practice right is critical, as Mr Lee explains: In terms of the accounting date, to keep things straightforward, you should opt for 31 March or 6 April, to avoid overlapping profits being taxed more than once.

And with VAT, if your turnover is going to exceed 52,000 a year, you should register, and you can even register early which means that you can recover VAT on the expenditure you incur.

There are also the latest regulations to comply with.

If you are going to become self-employed, you must notify the Inland Revenue within three months of starting the business, so that you can pay class 2 National Insurance contributions.

And if you are starting a business from 6 April 2001, with at least two people in the business, you should consider whether to set up as a limited liability partnership.Another option is to incorporate: if you do so, Mr Yates says: You have a model similar to the clients that you service, and think like your clients, with board meetings, shareholders, directors, and published accounts.Mr Lee warns overtrading: As you get more work, you need more resources to service that, and you have to gear up before you get the money in.

You can go out of business because you have too many obligations and no cash coming in.

You have to be prepared to say no to work that is outside your niche, and develop reciprocal arrangements to meet those needs.Mr Yates of v-lex agrees: You have to keep control of the money the cash flow has to be monitored if not daily then weekly, and you must keep up to date on chargeable time, and bill as quickly as you can and collect on those bills.

The importance of financial control cant be overestimated.

And you have to invest a lot of non-chargeable time in account management or client relations.But it is not all hard work and unpleasant reminders of what has not been done; Messrs Tite and Lewis have been preoccupied with building up a decent collection of office art, while Ms Culshaw advises: Its easy to account for all the large-scale things, and you can overlook the small things like vases when everyone sends you flowers when you open in your new office.

Linda Tsang is a freelance journalist