If you are thinking of starting a new business, or if you are just about to take the plunge, you will know that there is a lot that you have to do. Here are a few things to think about and do, before you dive straight into running your new business.
Trading Entity
One of the first things to consider is what type of legal entity you intend to use. Often people just start and don't consider what business structure they need until later on. If you have any doubts I recommend you talk it through with your accountant or solicitor.
The basic types of business are a sole trader, a partnership, a limited company or a limited liability partnership. Whilst in some cases the structure can be changed relatively easily, it makes sense to give it some thought before you start. You should also think about your exit plans at this stage, as this may affect your choice of trading structure.
A sole trader is just that. You set up in business on your own. The business is no more than an extension of you in many ways, certainly as far as your finances go. This by far the easiest option for a lot of people, as there is less administration, but it can also be lonely. If you set up on your own look for ways to meet up with other business owners on a regular basis.
A partnership is two or more people working together, your liabilities are similar to those of a sole trader, though bear in mind that usually all partners are responsible for the actions of the others.
If you set up in partnership you should have some kind of agreement defining what the shares are and who gets what in the way of drawings and distributions. This will also cover what happens in the event of a major disagreement, or if one partner leaves for any reason.
Trading as a limited company can have many benefits, in particular it means that the business is a separate entity from you. This means that your liability is limited to the amount of share capital you have in the business. There may also be tax savings depending on your circumstances, but you should never make your decision based solely on tax implications.
There are more costs involved and often more red tape than with a sole trader or partnership. A company has to file various forms as well as its accounts with Companies House, and there is a cost involved in doing this, as well as in preparing the information.
A limited liability partnership is like a cross between a partnership and a limited company. It has a set up like a partnership, but the limited liability of a company. It must file records with Companies House in a similar way that a Limited Company would.
There are many areas to consider when deciding what trading structure is best for you. These include among others, the tax implications, your own financial situation - pensions, mortgage etc, whether you need a vehicle, what type of business you are setting up, whether there is a property involved, or a requirement for a property, how many people are setting up the business and what relationships are required.
The best thing to do is talk it over with your advisors and make an informed decision. What you are aiming to do is find a balance between the various issues that works for you.
If you start as a sole trader or partnership, you can always change into a limited company later on.
Tax
You need to make sure that your business complies with the (extensive) tax and information filing requirements imposed on you. If you don't you will almost certainly incur problems, and financial penalties.
When you set up in business you have to register with the Inland Revenue for tax and National Insurance. If you will have staff you need to register for PAYE as well.
If you don't register within the first three months you will be liable to a penalty of £100.
You don't actually have to pay your tax until after the year end when you start, but for sole traders and partners National Insurance is paid weekly (or monthly) with a further one off payment at the end of the year once you reach a minimum level of profit.
If you have staff your PAYE must be paid every month and you will have various forms and returns to complete at the end of the tax year (mostly in May)
http://www.inlandrevenue.gov.uk/
If you have already appointed your accountant they may do the registrations for you.
VAT
As with tax you also need to be aware of the requirements surrounding VAT.
You don't have to register for VAT straight away, but it maybe worthwhile doing so. You have to register when your turnover reaches the registration threshold - £56,000 in 2003/04, unless you are in an exempt industry.
You can voluntarily register for VAT from day 1 (unless exempt). http://www.hmce.gov.uk/
Accountant
Find a good accountant, not someone who will just do your tax return at the end of the year but someone who is proactive and forward thinking. Ask around, get recommendations and interview a few. Make sure you like the person / firm and are happy to work with them. (See "10 Things To Ask Your Accountant")
Banking
Open a bank account. Keep all your business transactions separate from your personal ones. You will find it much easier to manage - your accountant will like it too! Some people do actually just use their personal account. As with everything else in your business it makes sense to keep it all separate from your personal affairs - even if you are a sole trader working at home.
So find yourself a bank and a decent bank manager, and open a new account for the business. Or probably two or three. Have a current account and at least one savings account. This makes it easier to manage your money. Have one savings account for tax and VAT. Every month transfer the amount you owe for VAT, PAYE and taxes into this account and leave it there until the payment is due. That way you never have to worry about how to pay these important bills. If you are the kind of business that receives money in advance from clients or deposits, it is also a good idea to hold this in a separate account. Just transfer it into your main account as you do the work.
Where to work
Decide where you are going to work. You have many choices - at home, in an office, in a warehouse, near to customers, out of town..... What is right for you and your business? Deciding where to base yourself may depend on many factors. Unless you are starting some kind of retail business or need something like a warehouse, you really can be where you want to these days.
Firstly do you have to be in a certain place? And I mean have to as in a shop must be on the high street, rather than you think you ought to be based somewhere for the prestige, or because everyone else in your industry is there. Do you need to be next to a transport link, either for deliveries, access to a distribution network or because you service those industries that do?
Do you need a smart office? Very unlikely I suspect whatever you might think about "image" etc. You can rent a room for important meetings. Remember, you can create the perception of a large company even if you work in a box room at home. You can have virtual everything now, smart address, telephone, fax, assistant........ so don't go into an office you can't afford because of the way it will make you look.
Working at home may not be an option if other family members will be there, for example if you have young children and you need to be on the telephone for a large part of your day, this will not be practical unless you can shut yourself away. Wherever you work you need to consider the image you project and children (or pets) being noisy in the background isn't professional - however much you love them!
You may also want to consider proximity to others. If you need to be out and about a lot it may be worth being reasonably central to keep your travelling costs and time down.
Working at home will almost certainly be the cheapest option, and is very common these days.
You may wish to think about serviced offices. These are rented offices with full backup support, such as reception, telephone answering, copying, secretarial, meeting rooms and so on. They can be ideal for new businesses, but they don't come cheap. And watch the extras, with the bigger names you can double your bill with extras quite easily. The advantage is that they can be taken very short term - a month at a time, and the additional facilities. You can be on your own but have full office support. The downside is the cost, and most of them offer a virtual service to businesses, so you can work at home and still get all the upside without the big bill. And no one else will know the difference.
Alternatively if you cannot or choose not to work at home and serviced offices aren't for you then you will be looking at rented offices or warehouse space. Unless you have funds to buy.
Some Quick Tips
Write your Business Plan. It may sound obvious, but lots of people don't do it. There are lots of places where you can find free help and advice, just do a search on the internet, or ask your business advisor.
Make sure you know how you are going to finance your new business. Have you plans to survive the first 3-6 months whatever happens?
Research your market. Make sure there is demand, do people want what you have to sell?
Read The E-Myth Revisited By Michael E Gerber. It has to be THE book for new business owners.
Get a domain name the same as your business name or one that describes what you do. Having a free email address just screams out "small home business" even if you're not!
Read further tips in "10 Things To Do Before You Start Your Business"
Sign up for Start Up 101 - an eprogramme for new business owners
Julia McDaid is a business coach and author, specialising in helping business start-ups. For more information on these issues or on coaching for new business owners, see http://www.startupright.co.uk or enrol on Julia?s unique Start Up 101 ecourse, where you can go into each question in a lot more depth. Julia also publishes a free ezine ?Secrets of the Successful Entrepreneur? ? to sign up just send an email to ezine@startupright.co.uk
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