Starting your own business is exciting, but in the midst of deciding what you are selling, your unique proposition and choosing the design of your funky new website, it’s easy to forget some of the more mundane items. After all, do you really need to worry about bookkeeping, cashflow or taxes straight away?
The answer is a resounding yes! While it might not be as interesting as designing your new logo, if you don’t have the right processes in place to manage your money you are setting up your business to fail.
So, put the logo design to one side and take a look at the top 5 decisions you should be making before you even open your doors.
-
Choose the right business structure
Whether you decide to set up a limited company or be a sole trader, choosing the right business structure is one of the key decisions you will make. It’s not that you can’t change structure as your business grows, but it will definitely save a few headaches if you get it right straight off.
Which option you want to choose will depend on your own individual circumstances, tax implications and how you want your company to be perceived. For example, some customers and suppliers won’t work with sole traders, so your type of business will partly influence which business structure you choose.
However, it’s true that when you first start out, becoming a sole trader has a number of clear advantages. As well as being easy and cheap to set up, you’ll have fewer statutory filings to worry about and any profit (after tax and NICs) you’ll get to keep.
If you want to know more about the different business structures available, we’ve put together this useful list of each, along with a breakdown of their advantages and disadvantages.
-
Decide how you will pay yourself
This will obviously depend on the business structure you set up. As a sole trader, you can simply take money from your business account to pay yourself. We would always advise you have a separate bank account for your business, as this makes it easier to keep track of what you have withdrawn. Just remember you also need to put money aside for the taxman.
If you set up a limited company, the most tax-efficient way to pay yourself is to take a salary which is below the National Insurance threshold and dividends. This blog covers why this is the most tax efficient way. Just remember the National Insurance threshold tends to change each year, which means you will be able to pay yourself a little bit more.
-
Work out how to keep your bookkeeping up to date
Bookkeeping simply records all your income and expenses, and while that might sound easy, it’s not if you don’t put a system in place from the outset. While it might be tempting to put all your receipts into a box and only worry about them when your accounts are due, it’s much better to try and keep on top of things. Put aside some time each week, or even each day to update and balance your books. Not only will it be easier to keep accurate records (will you really know what that receipt was for in 6 month’s time?), but it will give you a clear understanding of how much money you have in your business.
If bookkeeping fills you with horror, we offer a range of bookkeeping services and can help you as little or as much as you want.
-
Get to grips with your financial information
Do you understand the difference between cashflow and turnover? Do you know how to work out your profit?
Bookkeeping doesn’t just keep track of your income and expenses, it also provides invaluable insights into your business, such as your profitability. Without having a proper understanding of your profit margin or which clients are the most profitable (and which the least) you won’t be able to make any informed decisions about how much your charge or where to focus your efforts.
Understand how bookkeeping helps you work out this information from the start, and as your business grows, you’ll be fully informed to make the right strategic decisions.
You’ll also be able to quickly identify whether you are close to the VAT threshold of £85,000. If you are then you must register for VAT.
-
Get an accountant
Obviously, we’ve a vested interest in saying this but look at it this way. What would you rather be doing? Running your business and focusing on what you’re really good at or worrying about balancing your books?
A number of our clients have come to us after initially trying to do the books themselves and then realising what a pig awful job it is. Remember, it’s not just about keeping a record of how much you spend and earn, but also about ensuring you’re compliant, knowing all your important tax deadlines and making sure any accounts are submitted in the right format.
And because we are experts, we’ll also be able to advise you where you can save tax, so you and your business are as tax efficient as possible.
But there is more that an accountant can offer. With such intimate knowledge about all your finances, we are ideally placed to spot trends and identify areas for improvement that will help drive your business forward. And when you’re just starting out in business, that’s exactly what you need.
Looking for advice on starting your own business?
As we said at the beginning, starting your own business is exciting, but sometimes it’s good to talk to a professional, not just about financial management, but also about your plans for the future.
At Chimes, we are experienced in helping fledgling businesses get off the ground and then supporting them as they grow. If you need any help getting started or want someone to take some of the burden away, then give us a call. We’ll be happy to help you realise your business dreams.
