A beginners guide to starting up in business.
It is the ambition of many people to run their own business. Many make the decision to start up in business to be more independent and obtain the full financial reward for their efforts. Setting up in business can be very rewarding, but there are a certain amount of dangers and risks involved. Probably the greatest concern is the possibility of business failure. This is a brief guide to starting up in business where we will cover the basics and initial considerations.
Starting a business can be very demanding; it takes commitment, enthusiasm and determination. You will need to multitask and juggle your work load to suit the businesses needs. You and your business would certainly benefit if you had managerial, financial, technical and marketing skills. All of which can be gained through training or you may want to consider a partner or an employee to assist you in these areas.
In addition to these general considerations there are also a number of more specific matters.
The Business Plan
Your plan should provide a thorough examination of the way in which you plan to run and grow your business. It should describe the business, product or service, market, mode of operation, capital requirements and projected financial results.
If you need finance, no bank manager will lend money without a sensible, thorough and realistic business plan.
Click here to read our blog on ‘hints and tips for creating a business plan’
There are three common types of business structure:
Sole trader – This is the simplest form of business since it can be established without legal formality. However, the business of a sole trader is not distinguished from the proprietor’s personal affairs.
Partnership – A partnership is similar in nature to a sole trader but because more people are involved it is advisable to draw up a written agreement and for all partners to be aware of the terms of the partnership. Again the business and personal affairs of the partners are not legally separate. A further possibility is to use what is known as a Limited Liability Partnership (LLP).
Company – The business affairs are separate from the personal affairs of the owners, but there are legal regulations to comply with.
The appropriate structure will depend on a number of factors, including consideration of taxation implications, the legal entity, ownership and liability.
Books and records
All businesses need to keep records. Business records should contain details of payments, receipts, credit purchases and sales, assets and liabilities
The books and records are used to produce the accounts. If the records are well kept it will be easier to put together the accounts. Accounts must be prepared for HMRC and if a company is formed there are strict legal requirements as to their format.
A company and a LLP may need to have an audit and will need to make the accounts publicly available by filing them at Companies House within a strict time limit.
When starting in business, taxation aspects must be considered.
Taxation on profits – The type and rate of taxation will depend on the form of business structure. However, the taxable profit will normally differ from the profit shown in the accounts due to certain expenses which are not allowed for tax purposes and the timing of some tax allowances.
National insurance (NI) – The rates of NI contributions are generally lower for a sole trader or partnership than for a director of a company but the entitlements can also differ. In a company, it may be possible to avoid NI by paying dividends rather than salary or a combination of both.
Value added tax (VAT) – Correctly accounting for VAT is an essential part of any business and neglect may result in a significant loss.
When starting a business you should consider the need to register for VAT. If the value of your taxable sales or services exceeds the registration limit you will be obliged to register.
For the business to get off the ground or to enable expansion, it may be necessary to employ staff.
It is the employer’s responsibility to deduct income tax and national insurance and to account for student loan deductions. The balance must then be paid over to HMRC. Payroll records should be carefully maintained.
You will also need to be familiar with employment law.
How HSJ can help
Whilst some generalisation can be made about starting up a business, it is always necessary to tailor the strategy to fit your situation. Any plan must take account of your circumstances and aspirations.
Whilst business success can never be guaranteed, professional advice can help to avoid some of the problems which befall new businesses.
We would welcome the opportunity to assist you in formulating a strategy suitable for your own requirements. We can also provide key services such as bookkeeping, management accounts, VAT return and payroll preparation.
Call us on 0845 365 1000 or email Nick on firstname.lastname@example.org