Hidden costs of choosing your perfect business name

A business’s name is the first impression it offers the world. Yet despite its significance, there are numerous hidden costs in a business name that aren’t widely known. Many of these costs only become apparent when problems arise. Some may go completely unnoticed. Knowing what they are could save you a small fortune – and plenty of stress – down the track.

Company structure

The most basic business name consideration is the difference between company name and trading name, as they’re not necessarily the same thing. The trading name is what’s most recognisable to the market, creating both opportunities and costs. The company name is the actual name of the corporate entity registered with the Australian Securities & Investments Commission. This distinction is important in legal and financial matters. It also matters for the sale of a business – does the sale cover the trading name and the legal entity too?

Reputation management

Businesses bearing their founder’s name are usually done to trade on that person’s strong reputation within their field. However, it’s a double-edged sword.

If the business faces a public relations disaster or is found liable for wrongdoing, that individual’s personal reputation is also tarnished – perhaps permanently. Businesses can rebrand for a fresh start, while that option isn’t so easy for people.

Should the business come under new ownership in future, that individual loses all management and reputational control. Again, that could blight their good name should its customer service go downhill, or the business goes bust.

Trademarks

Trademark disputes over similar names can and do occur – both within Australia and internationally. The Australian battle with a US company over the Ugg boots name is a prime example.

However, investing in trademarking a name can have benefits too. An Adelaide business successfully blocked US fast food giant Burger King from using the name in Australia, thanks to its existing trademark – hence why the Australian franchise is known as Hungry Jack’s.
Weigh up the costs of trademarking against the potential disputes and losses that could arise in future as the business grows.

Mistaken identity

Having a similar name to another business – especially one in the same area or specialisation – can be a source of confusion. Not just for customers, but it can create legal, financial, tax and supplier issues, and even basic problems like misdirected mail.

The same could be said of businesses named after their street or suburb which subsequently relocate to a different area.

Also consider your ownership structure. If the business is connected with a trust or self-managed super fund with a similar name, it could create headaches with regulators and the tax office.

Service clarity

Many businesses today opt for trendy names that sound funky or creative. However, these names often say nothing about the products or services on offer.

The risk is that such names could be losing the business sales, as customers overlook it in favour of competitors that are easily distinguishable.

This is especially true online, where search engine optimisation is a key driver of website traffic.

Sale implications

Believe it or not, the name of a business can impact both the demand for and value of that business come sale time.

An undesirable name could limit the pool of potential buyers for the business. Interested parties could also incorporate a costly rebrand into their price negotiations. Conversely, a strong name and good brand can deliver a higher sale price.

Separately, some business owners – particularly professional service providers – sadly shut down their business at retirement, not realising its inherent market value. Intangible assets like client/customer lists and intellectual property are still assets that can be sold.

Not selling those assets can be a substantial financial loss and undoes the years of hard work that went into building the business.

Helen Baker is a licensed Australian financial adviser and author of On Your Own Two Feet: Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce: Your Survive and Thrive Financial Guide.