hints and tips

10 steps for the business start-up.

1. The first decision to make is what format you would like your business to take. Most new business owners are likely to make a straight choice between being a sole trader or setting up a limited company. A company requires more administration to run, but is often more tax advantageous for the owner(s). Check out “did you know” on this subject. If you choose to become self-employed, you will need to register with HM Revenue & Customs. In spite of what you may have been told, they are very friendly. Give them a call on 08459 15 45 15 or try their website www.hmrc.gov.uk. If you'd prefer to setup a company, we would be delighted to do this for you, but we do have to charge a fee as you might expect.
2. Once your business is set-up the next thing to do is to open a bank account. It's a legal requirement to have a business bank account for a limited company, but you might find it easier to open a separate personal account for sole trader businesses. Most of the banks will offer free banking for an initial period, typically 12 months.
3. Number 3 on the list is the VAT question. Should I be registered for VAT or not? If your sales are less than £68,000 per year then you don't have to register, but it may be useful for the business to do so anyway. If your customers are typically other businesses, then charging VAT on your sales to them will often have no effect as they will likely be able to reclaim it. However if you sell to the general public, being VAT registered before you have to will simply reduce your profits. If you are VAT registered, you can reclaim VAT on many of the items you buy for the business. If you're not sure, please give us a call to discuss the option that's best for you or check out our other “did you know” pages on this subject.
4. Step 4 on the road to success is your record or book keeping. Maintaining accurate and detailed records of what you sell and buy is essential in understanding your business's performance and perhaps of more personal interest, how much you can draw out to live on. We can help you decide if a bookkeeping package is needed, or give you a spreadsheet free of charge to use – there are some available to download in the resources area.
5. More businesses fail due to a lack of cash than a lack of profit. A cashflow forecast helps you to understand when you will receive money from your customers and when you owe it to your suppliers. They can be extremely simple to prepare but very valuable in helping ensure the bank balance remains positive. It is likely you customers will take 30-90 days to pay you depending on their size and financial position.
6. How do I get paid personally is a frequent question we are asked. As a sole trader, you can draw money from the business but see below the implications regarding tax. As a limited company, you have the option of combining a salary (just like a regular employee) with dividends (sharing of the profits). You will need to register as an employer to operate payroll and will need to make profits to distribute a dividend. We'd be happy to help you set-up the most efficient structure for your business.
7. Step 7 is preparing for tax. You may find it useful to open a separate savings account for the business and keep some money back each month for the eventual tax bills. As a company, you should think of depositing approximately 25% of your profits each month (before any dividends) for your future corporation tax bill. As a sole trader a sensible figure would be 30% of your profits to allow for your self-assessment tax plus class 4 National Insurance. As a sole trader you could open a mini cash ISA to store these savings and let the money grow tax free.
8. We've got the finances together - now we're ready to trade. In order to stay legal, you'll need to ensure that your business documentation contains the correct information, you might even want some simple but effective graphics to advertise your business - letterheads, business cards, etc. We can point you in the right direction through partners we've worked with on many occasions.
9. Step 9 is remember to keep close control of your cash. Don't spend money unless you have to, whether that's with us or other suppliers/advisers. Remember that most businesses that fail do so due to a lack of cash.
10. Step 10 is again remember about the cash (hopefully you're getting the picture). Cash is king, queen, president and prime minister. Cash is your nearest and dearest - so please look after it.