Starting A Business
How to set your business up for success from the beginning
Many great businesses started out as a hobby or side hustle. But taking your hobby and making it into a business can feel like a minefield of legal stuff and paperwork. Sorting out your finances, the legal stuff, and how you will market yourself are essential. Up until now you may have focussed on getting really good at your hobby and using social media to get people to notice you, but that is not going to create the impact you want without feeling confident your businesses foundations are sound.
It's far easier to get it sorted out from the start, then revisit the things you have to do at some point down the line. You don't need to get it perfect as your business will evolve over time. You can start out as a sole trader and switch to a limited company whenever you want, and back again, you can also change your financial year end date. But it's best to have some forward planning so here goes...
1. Your Business Name
It drives me crazy when new businesses choose names they think will do well in the search engine results. They decide to choose a name that matches the words they want to be found in the search engines for (keywords). These are called exact match domain names, but calling yourself Suffolk Baubles doesn't mean your competitor can't call themselves Baubles Suffolk, and what do you do when you want to sell so much more than just baubles. Come up with something memorable that you can brand easily.
Once you have your name you are going to be tied to it, so take some time getting it right. Choose a name that reflects your business and you. You can go for something abstract, something that describes your product, describes what you do, and/or what you stand for and who you are.
Remember to check that the name you choose is available and hasn't already been taken. Especially if you are selling the same product as someone else. There will be nothing worse then investing in domain names, websites, email addresses and printed personalised media, to find out someone else is already using it.
2. Register Your Business
First things first, decide if you are going to be a sole trader, partnership or limited company. You can always change from sole trader to limited company or a partnership back to a sole trader whenever you like, so making this decision isn't set in stone.
You will need to register with HMRC as a sole trader so they know you are self-employed and will be filing a tax return by January each year. At the time of writing Tax Is Going Digital, so all documentation of expenses and sales should be digital, as well as having to file your accounts digitally every quarter from April 2024.
To become a Limited Company, you simple have to register your business on Companies House and with HMRC. You'll have to pay a £15 filing fee every year when you file your accounts and directors statements.
The difference between a sole trader and limited company is who is responsible for any debt. If you can't meet your payments and go out of business the sold trader (you) is responsible for paying back all the debt or becoming bankrupt, if you become bankrupt an insolvency practitioner looks at all of your personal assets and starts selling them to clear the debt, including your home. If you are a Limited Company the debit is with your company, the company assets are sold to met the debts but your personal assets remain yours.
Register for VAT assessment if you need to charge VAT on your products.
Whichever you decide to become, you need to keep track of your financial admin right from the beginning. Keep tasks like submitting year end accounts, tax returns and self assessments at the forefront of everything you do.
When taking the self employed route, you need to be aware, when you submit your first set of accounts you will not only have to pay the amount you owe, but an estimated future amount as well called payments on account.
The best thing you can do is to work out your tax liability every month or take 20% of your sales total and put this away in a savings account, this way you will always be covered.
Here is how Payments on account work
Payments on account are advanced payments towards your tax bill, including Class 4 National Insurance.
You have to make 2 payments on account every year unless your self assessment tax bill is less than £1,000 or you are paying what you owe through your tax code because you still work for someone else.
Each payment is half your previous year's tax bill. Payments are usually due by midnight on 31st January and 31st July.
If you still have tax to pay after you've made your payments on account, you must make a 'balancing payment' by midnight on 31 January next year.
First Year Accounts
The first years tax bill is £1,800.
Now the payment on account has to be worked out. Taking the tax bill owed of £1,800 divide by 2 = £900.
By the 31st January both the tax owed and the payment on account must be paid. £2,700 (£1,800 + £900).
By the 31st July a second payment on account has to be made. £900.
Second Years Accounts
The second years bill is £3,000.
Two payments on account have already been received by HMRC (£900 + £900 = £1,800) see above.
The amount left to pay is £3,000 - £1,800 = £1,200. This is the balancing payment
Now the payment on account has to be worked out. Take the tax bill owed for the second year and divide by two. £3,000 divide 12 = £1,500
By the 31st January both the balancing payment and the payment on account have to be made. £2,700 (£1,200 + £1,500)
By the 31st July a second payment on account has to be made. £1,500.
Third Years Accounts
The same as the second years accounts, and for every year thereafter.
4. Find a Professional Accountant
If you don't think you can manage your accounts yourself, find a professional book keeper or accountant. They will have a set fee to deal with processing and submitting your accounts to HMRC. If you can't afford them, then ask them to set up your accounts in excel or in an accounts package and to give you some training on what to do, which is a cheaper option.
By seeking the help of someone who knows what they are doing, you are saving yourself a lot of stress and time. They will ask all the questions for you, and feed them back to you in a way that you will understand. They can help you define what really is the best set up for your circumstances. This will keep you from filing your accounts late and receiving fines from HMRC.
5. Define your payment terms
One of the best things you can do when running a business is to have a spreadsheet detailing when and how much customers are expected to pay each month. Along with how much money you have to pay out to your suppliers.
This will help you to agree payments terms with your suppliers, ideally you want to pay suppliers after your customer has paid you.
You also have fixed costs every month that have to be paid, with a cash flow forecast you can spot when you are likely to be running low on money and can step up marketing and advertising to bring in more sales for that period.
6. Separate Personal & Business FinancesYou don't have to have a business banking account. Most banks do not like their clients paying in money earned from their own businesses into a personal account.
It's best to start with a business account from the beginning. There are plenty of free business banking offers on the market offering up to 18 months to 2 years free banking while you get started. By having your accounts separate you will be able to see what money is available to pay you a wage, and what is available to be invested back into the business.
Building the foundations of your business correctly from the beginning will give you a securer future, leaving you more time to focus on the things that spark your passion and excite you.
By DRA Website Design & SEO Consultants
Further Reading - business advice and marketing
- 15 Step guide to starting a business
- 6 Things to try when sales are low
- Boosting your SEO ranking and why small businesses should do it
- Is SEO worth the cost for small businesses
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