Starting a business is an exciting and challenging experience, and one which also carries a fair degree of risk. During the start-up phase you will need to make all kinds of decisions that could be critical to the long-term success of the enterprise. You’ll need to consider such things as: the type of business and its attributes; your target market and competition; profit potential and how you will extract those profits; the rate of business growth; and the impact of running the business on your personal life. At some point, you’ll also need to consider how you will exit the business when the time comes, and realise its value. We can provide expert, tailored advice and help you avoid the common mistakes.

  1. Testing your idea

You won’t be starting on this journey unless you believe your idea is a winner, and testing your idea can save you time and money if things don’t turn out as planned.

Conducting market research before starting your business will enable you to gauge interest in your product or service and how much consumers may be willing to pay for it.

Living in an increasingly digital age means you can do much of this online. You could visit the websites of potential rivals, trade groups or industry publications for useful statistics.

It’s also an idea to identify your ideal customers – those who may be interested in buying your product or service. Think about their needs and habits.

If you have the cash at this early stage, you could hire an objective market research expert who will give you an unbiased assessment based on established techniques in your industry.

     2. Writing a business plan

One of the first things you need to consider is your business plan. This is not only for the benefit of potential investors, but to help you stay on the right course in the short, medium and long-term. It should include: the business structure that best meets your needs (such as: sole trader, partnership, limited liability partnership or limited company); your intended funding sources; tax-efficient borrowings; whether a PAYE scheme is necessary; and whether the business should be VAT registered.

We can guide you through these important decisions, and help you to complete the appropriate registrations. We can assist with cash flow forecasts, helping you to spot potential cash shortfalls, and provide regular updates so you can monitor your business’s performance.

    3. Choosing your business structure

Deciding on the most appropriate structure for your business isn’t necessarily straightforward. Sole traders, partnerships, limited companies and limited liability partnerships all have their own pros and cons, with different implications for control, perception, support and costs. For example, careful consideration is needed regarding whether or not to retain personal ownership of any freehold property on incorporation. We can help you to decide on the best structure for your business.

If you opt to become a sole trader, you will run your business as an individual and be entitled to keep all of the profits it makes. You’ll also carry the can for any losses it makes.

You must pay income tax and national insurance contributions (NICs) on any profits by completing an annual self-assessment tax return.

Despite the title, sole traders can employ people.

You may also need to register for VAT if your profits are likely to exceed £85,000 a year in 2018/19.

General partnerships and limited liability partnerships define the partner’s liability for debts the business accrues. Profits are shared between partners who are responsible for paying tax on them in an agreed ratio.

Partners in a general partnership can be personally responsible for a partnership’s debts and are responsible for managing the business.

In both types of partnership, the individual partners are taxed in the same way as if they were sole traders.

With a limited company, the finances are separate from your personal finances, so your personal assets will usually be protected if your business gets into trouble without breaking the law.

As a limited company director, you must register it with Companies House, provide statutory accounts, send Companies House a confirmation statement, and complete a company tax return.

As a director or shareholder of the company, you will not be personally taxed on the profits of the company which you do not extract.

Much like a sole trader and a partnership, you will have to register for VAT if your annual turnover exceeds £85,000 in 2018/19.

Forming a limited company – forming a limited company may be a consideration if the limitation of liability is important, but it should be noted that banks and other creditors often require personal guarantees from directors for company borrowings. Trading through a limited company can be an effective way of sheltering profits. Profits paid out in the form of salaries, bonuses or dividends may be liable to top tax rates, whereas profits retained in the company will be taxed at 19%. Funds retained by the company can be used to buy equipment or to provide for pensions — both of which can be eligible for tax relief. They could be used to fund dividends when profits are scarce (spreading income into years when you might be liable to a lower rate of income tax) or capitalised and potentially taxed at 10% and/or 20% on a liquidation or sale.

Deciding on a year end – It’s also important to choose a year end that suits your business. Is there a time of year when it will be more convenient to close off your accounting records, ready for us? What time of year would be best for stock-taking? Is your trading seasonal? From a tax perspective, choosing a year end early in the tax year for an unincorporated business usually means that an increase in profits is more slowly reflected in an increased tax bill, and over time the delay between earning profits and paying the tax can create a source of working capital for the business. On the other hand, a decrease in profits will more slowly result in a lower tax bill. Speak to us for advice about choosing your year end.

    4. Registering with HMRC

When you start a business, it is important to inform HMRC of your new self-employed status as soon as possible. If and when you take on employees you need to register for and set up a PAYE scheme and accept all the responsibilities and obligations that go with it, including compliance with Real Time Information reporting (and remember for this purpose you will most likely be an employee of your limited company, if you incorporate). You will also have to comply with the pensions auto-enrollment obligations, although exemptions apply to director-only companies so do get in touch for advice in this area.

Please talk to us as soon as you envisage having employees so we can help you set up a PAYE scheme and comply with your payroll obligations, or take on the task on your behalf.

5. Managing your business

How you manage the first 100 days of your startup will go a long way to determine how successful a venture it ultimately is. Below are some areas to consider.

Business insurance can protect you against mistakes, damage to stock or premises, and legal costs. Some policies can even protect against business interruption and supply chain breakdown.

Have a medium-term goal and stick to it. These should support your long-term visions for running a successful business and usually last between three and five years.

Pay attention to customers early on. Using social media platforms is often a constructive way to do this, and should set the tone for how you handle all customer feedback.

Keep track of the exact amounts of money flowing in and out of your business. Keeping digital records is a useful way to do this, and will help you understand your business’s cashflow.

Forecasts play a vital role in managing your business, with sales forecasts and profit/loss forecasts covering most of your business’s income and day-to-day costs.

Late payments are the scourge of entrepreneurs. This has a significant impact on cashflow, but there are things you can do to encourage customers to pay on time.

Be upfront about your payment terms and conditions from the start, including your right to claim interest on invoices or issue charges in the events of late payments. You could even offer a discount for fast or early payments.

As well as ensuring you have the right money coming in, you’ll need to be aware of your spending. Look at where you’re spending the most money and how you might be able to make savings.

For example, assessing your stock can help you focus on how long it takes you to sell stock on average, and where the majority of your profit comes from.

Another area to think about is the tax your business is paying, and whether you’re taking advantage of any reliefs or allowances.

If you are eligible for these or other reliefs, our experts can apply them ahead of the tax year to make your business more tax-efficient.

Starting a Business — Action Plan
Prepare a robust business plan
Ensure that you have access to suitable funding
Check your right to use your chosen trading name
Choose the right business structure
Register with HMRC Register for VAT
Register your business name
Trade and professional registrations
Choose your year end
Plan to reduce your tax liability
Develop your branding
Involve the family
Plan to avoid fines and penalties

We can help with all of your business and personal tax and financial planning needs. For a strategic review of your finances, please contact us.

This guide was written specifically for Smart Accounting clients. Some of the information contained in this guide might not be applicable if you do not have a business managed by Smart Accounting. By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details are correct at time of writing.


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