Ok, so you have made one of the biggest decisions of your life and have decided to start your own business. The process can be lonely and challenging, but if you get it right from the outset your business will have a much better chance of success and longevity.
So, what are our top 10 tips to get your business on the road to success?
1. Get an Accountant
Well, we would say that, wouldn’t we! But when starting out in business, the most important thing is getting the best advice as soon as possible. A good Accountant will help you set up your business in the most tax efficient way, ensuring you keep your tax liability to a minimum. They will also advise on how to keep your business records so you always know exactly where you are.
They will also handle a lot of the red tape, allowing you to concentrate on running your business.
2. Plan, Plan, Plan
As the old saying goes, ‘fail to plan then plan to fail’ so a business plan is crucial. The first thing you will need to do before writing your plan is do your research. Not just into your industry sector but also make sure you know what your competitors are offering. You need to stand out in the market place, so try and find a unique selling point.
Understand your numbers and ensure that they are conservative and achievable. It is crucial that you have a basis for your forecasts, whether this is from market research or from industry data. One of the most crucial calculations you will need to do, is your breakeven point. You will then know how much you have to sell each month in order to cover all of your costs, any more and you are making a profit.
Once you have written your business plan, make sure you continuously revisit, review and update for any changes that occur along the way. Your plan should be a living document and be used to help you grow your business. Don’t just leave it in the bottom draw gathering dust, have it out on show and use it.
3. Get a business bank account
If you set up as a Limited Company; (your accountant may have advised that this is the most tax efficient structure for you), you have a legal requirement to hold a separate business account in the Company name. This is not the case for unincorporated businesses, such as sole traders.
We advise all our clients to have a separate business bank account, regardless of trading style, to ensure that personal and business finances are kept separate. This makes the financial record keeping a lot easier and also gives a clear separation between funds.
4. Register with HMRC
When starting a business it is important to register with HM Revenue & Customs as soon as possible to avoid any penalties for late notification.
If you are self-employed you can register using form CWF1. This form will give your personal details as well as the name and start date of your new business.
As a Limited Company you can register using form CT41G. This form will provide the company incorporation details and also the personal details of any Directors.
5. Your website is your shop front
Most small businesses will be looking to have their own website which they can use to promote their products and services to prospective customers searching the internet. A website can be your complete online sales tool, an opportunity to sell products and services, but also prove your businesses expertise and experience in a particular market.
Your business website should include everything; your company information, product or service details, testimonials, articles, case studies and any other information that would encourage your customers to buy from you. Probably the most important thing to include is your unique selling point. You need to stand out in your market place so ensure you tell your customers what makes you different and better than your competitors.
Once you have your website up and running, it is crucial that prospective customers can find it when searching the internet. Most small businesses get a professional web developer to assist them with this.
If you are looking for a professional small business website, you may like to have a look at Spaghetti Agency.
6. Tax Structure
Before you start trading through your business you will need to decide on your legal structure. There are many factors to consider, but the 3 main options are sole trader, partnership or limited company.
As a sole trader there is no legal requirement to publish your accounts each year. However you will need to submit a personal tax return to HM Revenue & Customs by 31st January each year. This return details all of your income and earnings for that tax year, including any profits made from self-employment. If you are forecasting to make a loss in the early years of your new business, self-employment may be a good option as you may be able to carry back any losses against previous earnings and receive a refund!
A partnership is very similar to a sole trader but is made up of 2 or more people working together in the same business. Each partner will need to complete a self-assessment tax return every year, but in addition the Partnership will need to submit a partnership tax return. This return details the profit of the business during the year, together with the division of profit between the partners. We would always advise that a proper partnership agreement is in place before trading begins to ensure that misunderstandings are avoided.
The final option is to form a limited company. This will provide you, as the owner, with limited liability and give separation between you and the business. In addition, Limited Companies often give a tax saving over that enjoyed by a sole trader or partnership if proper tax planning is undertaken by your accountant.
Limited Companies are required to publish their annual accounts with the registrar of companies each year. Any directors will also need to prepare a self-assessment tax return as with the other two options. Given the increased legality and increased level of reporting, accountancy fees are generally higher for a limited company than with a sole trader or partnership. However, the additional accountancy cost is usually far outweighed by the tax saving.
If your taxable supplies are likely to exceed £85,000 in the next 12 months you will need to register for VAT. This will require you to charge the standard VAT rate (20%) on all your sales. This is not optional unless the goods or services that you supply are exempt from vat or zero-rated.
It is important to consider who your customers are. Most businesses will be able to reclaim any VAT charged, however individuals cannot. Therefore, if your customers are likely to be individuals, then being vat registered when you competitors are not, will mean that your prices are higher than theirs.
If you work for VAT Registered businesses it may be advisable to voluntarily register for VAT under one of the small business VAT schemes, even if your turnover is below the registration threshold. This can often generate significant tax savings.
So you have started your business. Got an excellent website and are trading tax efficiently, but how do you get new local customers. We believe networking is the answer.
Attending local networking groups is a great way to meet new people. These, over time, may develop into suppliers, customers and most importantly sales advocates that will recommend you to all of their business contacts.
Once you are established in the local networking community you will in effect have a whole sales force of business people who are actively promoting your business.
If you are looking for a local networking community, we recommend www.link4growth.biz.
9. Record Keeping
As a business owner you will need to keep financial, accounting records. Many businesses choose to maintain their own books and records, whilst others find this too time consuming and therefore decide to outsource to a bookkeeper. Either way it is crucial that you maintain your records regularly; we recommend monthly records as a minimum. These will enable you to make important business decisions in a timely manner
Books and records which are accurate and up-to date can help maintain and grow your business. They may also reduce your accountancy fees, as your accountant will be able to spend more time providing advice and tax planning opportunities and less on creating the books and records.
10. Save for tax
Many new business owners have just come out of full time employment, where all tax charges are deducted at source from their salary each month. Business tax is different.
If you are self-employed you will need to pay tax twice a year, 31st January and 31st July. Most Limited Companies only pay tax once a year, which is due 9 months and 1 day after the financial year end.
With this in mind, make sure you save each month for your tax bill. It would be advisable to transfer a fixed percentage of your sales income into a savings account. Your accountant can advise of the most appropriate percentage for your personal circumstances, but 20% is a good starting point.
We hope you have found our tips useful. If you would like to discuss your business with one of our accountants, please contact us.