Starting Up In Business
It is the ambition of many people to run their own business. Some
may have been made redundant and find themselves with free time and
financial resources. Others make the decision to start up in business
to be more independent and obtain the full financial reward for their
efforts.
Whatever the reason, a number of dangers exist. Probably the greatest
concern is the possibility of business failure.
Read on for guidance on some of the factors which need to be considered
before trading begins.
This factsheet cannot cater for every possibility and any decisions
should be supported by professional advice.
Initial Considerations
In order to make your business a success there are a number of key
factors which should be considered:
- commitment - starting a business is demanding. Determination and
enthusiasm are essential
- skills - you will need managerial, financial, technical and marketing
skills. If you do not have these skills personally, they can be found
in a partner or employee, or acquired through training
- your product or service should have a proven or tested market,
but must not conflict with the patent or rights of an existing business.
In addition to these general considerations there are a number of
more specific matters.
The business plan
The business plan is the key to success. If you need finance, no bank
manager will lend money without a sensible plan.
Your plan should provide a thorough examination of the way in which
the business will commence and develop. It should describe the business,
product or service, market, mode of operation, capital requirements
and projected financial results.
Business structure
There are three common types of business structure:
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.
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).
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.
Business stationery
There are minimum requirements for the contents of business stationery
which will depend on the type of business structure.
Books and records
All businesses need to keep records. They can be maintained by hand
or may be computerised but should contain details of payments, receipts,
credit purchases and sales, assets and liabilities. If you are considering
purchasing a computer to maintain your records, obtain professional
advice.
Accounts
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 public by filing them at Companies House within a strict
time limit.
Taxation
When starting in business, taxation aspects must be considered.
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.
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. But in a company, it may be possible to avoid NI
by paying dividends rather than salary.
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.
Expect a visit from HMRC within eighteen months
of registration. This inspection of your records ensures VAT is being
properly accounted for.
Employing others
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.
Premises
There are many pitfalls to be avoided in choosing a property. Consideration
should be given to the following:
- suitability for the purpose
- compliance with legal regulations
- local by laws
- physical restrictions such as access.
Insurance
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 very attractive way of
saving for retirement because of the favourable tax rules. Many companies
have to provide access for their employees to a stakeholder pension.
How We 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
at an early stage. |
