Things you need to consider before starting a business:
Can you handle the commitment? Starting a business is demanding and challenging. Determination and enthusiasm are key to success, you need to be willing to put the hours in and be passionate about your business.
Do you have the skills? You will need to cover all angles of running a business including managerial, financial, technical and marketing skills. You won't necessarily need to have these skills personally, be prepared to hire or outsource experts for anything you're not sure of.
What makes you unique? Chances are your product or service will have a proven or tested market, but to set yourself apart from your competitors you must decide what makes you different and why customers should choose you.
Once you've considered these points, there are some more practical things to put in place before starting a business.
The business plan
If you're going to need finance, no bank or investor will lend money without a clear and considered plan. A business plan should highlight the way in which the business will start and how you expect it to develop over it's first year and into the future. It should describe in detail the business, product or service, market, any capital requirements and projected financials.
Business structure
Here is a basic overview of the common business structures. Read a more detailed comparison here.
Sole trader
This is the simplest form of business since it can be established without any legal formalities. The business of a sole trader is not distinguished from the proprietor's personal affairs, meaning the individual is responsible for the business' debts.
Partnership
A partnership is similar in nature to a sole trader where partners are personally responsible for the business. It is advisable to draw up a written partnership agreement and for all partners (can be more than two) to be aware of the terms of the partnership. A further possibility is to use what is known as a Limited Liability Partnership (LLP) which carries some additional legal regulations.
Limited Company
The business affairs are legally separate from the personal affairs of the company Directors and owners but compared to Sole Traders, there are additional filing regulations to comply with. The appropriate ownership structure will depend on a number of factors. Company owners will hold shares in the company meaning they are entitled to company profits.
Creatives
Probably the most fun part of starting a business is to start building your brand by designing a logo, website and creating marketing content. This can play a vital part in getting your business noticed. Creativity doesn't come naturally to everyone so it is best to reach out to a professional.
Business Documents
There are minimum requirements to be displayed on business stationery, both paper and electronic, which will depend on the type of business structure. Consider the requirements to be shown on your invoices, letter heads and email signature.
Record Keeping
All businesses need to keep copies of their records. You may wish to keep paper copies or electronic copies are fine. You must keep details of payments, receipts, credit purchases and sales, assets and liabilities. The exact length of time varies for each legal entity but generally business records should be kept for a minimum of 6 years.
Accounts
The business' records forms the basis of the accounts. If the records are well kept and bookkeeping updated regularly it will be easier to complete a yearend process and put together the accounts. Accounts must be prepared for HMRC for all business structures and if a Limited Company is formed there are strict legal requirements as to their layout. The accounts and company tax return must be submitted electronically to HMRC in a specific format (iXBRL). Limited Companies and LLPs may be subject to audit and will need to make the accounts publicly available by filing them at Companies House within a strict deadline.
Registering for Taxes
You must consider the relevant taxes appropriate to your business, examples include:
Tax on profits
All business structures are required to pay tax on its profits, the type and rate of taxation will depend on the business structure. It is worth noting that the taxable profit will normally differ from the profit shown in the accounts due to certain expenses which are not allowed for tax purposes.
National Insurance (NI)
The rates of NI contributions are generally lower for a sole trader or partnership (9%) than contributions paid on a Director's salary (12%) but allowances can also differ depending on structure. Owner Directors can pay themselves dividends rather than salary which do not attract NI contributions.
Value Added Tax (VAT)
Correctly accounting for VAT is an essential part of any business. The compulsory threshold when a business must register for VAT is £85,000. If you are VAT registered you will also need to consider appropriate software to ensure that you comply with the Making Tax Digital requirements.
Employing Staff
For the business to grow you may need to employ staff. It is your responsibility as an employer to advise HMRC of the wages due to employees via RTI (Real Time Information) submissions. Each pay day you must deduct income tax and national insurance (and other applicable deductions) through the PAYE (Pay As You Earn) tax system. The deductions must then be paid over to HMRC on the employee's behalf. Payroll records should be carefully maintained.
Employers are also required to automatically enrol all eligible employees in a pension scheme and to make contributions to that scheme on their behalf. Enrolment may be either into an occupational pension scheme or the National Employment Savings Trust (NEST).
You will also need to be familiar with employment law or outsource a HR expert.
Premises
If your business requires a premises, with the help of an expert you should consider the following:
suitability for the purpose
compliance with legal regulations
local by-laws
physical restrictions such as access
Insurances
Comprehensive insurance for business motor vehicles and employer's liability insurance are a legal requirement. Other types of insurance such as public liability, consequential loss, business assets, Keyman and bad debts should be considered.
Pensions
Putting money into a pension scheme can be a tax efficient way for business owners to save for retirement due to the tax releif available.
Don't go it alone
Remember that you're not expected to do all of this yourself. It's important to build a support team around you whether you hire in-house or outsource expert help. You will quickly learn your strengths and abilities and where you need support. If you need support with your record keeping and accounts, get in touch.
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Equal Accountancy Ltd offers Accountancy and Bookkeeping services in Hemel Hempstead and surrounding areas across Herts, Beds and Bucks. We offer a range of services for Limited Companies, Self-Employed individuals and Landlords including Year End Accounts, Corporation Tax returns, Self-Assessment Tax returns, Payroll services, VAT returns, Bookkeeping and Company Secretarial. Get in touch today for a free, non-obligatory quote for your business needs.
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