Start-Ups - Getting Started
You have that Eureka! moment and you think you’ve got a pretty good idea of what you want your business to do. Your idea in mind, whether it is to sell products or deliver a service, is going need a little bit of action to get off the ground and become more than an idea. This guide is here to help you do that.
Sole Trader or Limited Company?
You have two routes to set up with your business if you’re setting up on your own. You can register as self-employed with HMRC or you can form a Limited Company with Companies House and run your business through this. I’m going to give you the “head’s up” on what this means for you;
As a sole trader, the business profits will all go to you and will be taxed in line with your tax bracket. The benefits of a sole trader are that it is very easy to get going and it’s not too complicated. If you are expecting to make less than £30,000 in profit then it’s probably wise to go down this route as well. The reason being that Limited companies tend to cost more to run. They usually include higher insurance, higher record-keeping demand and accountancy fees tend to be more as well. This is because the admin side of a company is more intensive and it’s even more important to keep all of your records.
However, a company can be useful if you are planning to seek investment as you will have shares that you will be able to sell in exchange for money invested. Your shares is what determines your proportion of earnings you take from the business, so £10,000 end of year dividend with a share structure between 3 people of 50:30:20 means you will get £5,000 and the other two people will receive £3,000 and £2,000 respectively.
A company is also seen as a separate entity. Most of the time, this is important enough that it warrants the extra cost of running a company rather than a sole trader. Companies have limited liability so if everything goes wrong and it doesn’t work out, then the debts die with the company. You can walk away and you don’t need to worry about the house or your car. If you are a sole trader, the debts are with you and they won’t go away if you tell everyone that you aren’t trading anymore. This extra layer of security can help immensely, especially if you’re unsure if your product will take right away and it might involve an initial investment to get up and running, most likely from your own savings!
Lastly, the tax savings for directors through a Limited Company are present as well. They used to be much better before 5th April 2016 but now it’s slimmer margins so not as much of a bonus, hence why I’m tacking this on at the end. However, if you are earning over £30,000 then it is beneficial slightly. This used to be motivation to incorporate alone but not anymore. If you aren’t after the shares and you don’t want the extra cost or to be protected by the limited liability then best to stay as a sole trader.
To register as a sole trader, you need to visit HMRC’s .Gov website and register as self-employed. If this is your first time then you’ll be sent a Unique Tax Reference number (UTR) in the post and told when they expect you to submit your first self-assessment tax return.
If you plan to go down the company route then you need to incorporate your company. You can do this via Companies House for just the filing fee of £15 but if you’re unsure how you want to set up, what share structure to use and what paperwork to have then it would be worth you having a chat with us to help set it up for you for a small fee. Most companies will require a 100 Ordinary £1 shares but if you would like our help then just let us know.
The business plan
Secondly, look to build a business plan. Depending on how visual you are, you might find this more helpful to do this as a mind map at first, looking at the following;
who your customers will be
what your competition is
what you plan to make in your first year in revenue
what are your biggest predicted costs
There are plenty more - the idea is to try and list all different aspects of the business and explain or answer them. That way, you have a pretty good idea of what to expect and what you are going to need going forward. You then want to put this into some form of structure. Start with your business name at the top and work down those categories. This is especially useful if you are going to need investors or finance with a bank as they are going to want to know that you’ve thought about it. You can type this up in a Google Doc or create a pitch deck within Google Slides. We offer an interactive online business plans from just £5 per month with one of our packages that you can update as your business grows.
Business bank account
You’ve registered as self-employed or you’re the owner of a brand new company. It’s time to get a bank account. We strongly advise that whatever business form you choose (sole trader or company) that you set up a separate business bank account. The last thing you want is for all your business income and expenditure mixing in with your personal bank account. That is incredibly messy and most businesses who do this struggle to keep on top of their finances.
Most sole trader bank accounts can be set up online or in your branch. These are usually quick and they are up and running within a week. You’ll need to answer some questions on a form and probably require ID if popping into the bank yourself. Most banks like Barclays, Santander, Natwest and HSBC offer free business banking for the first 12 months. Some will offer more if you have a current account with them as well, such as Santander, but be sure to check as their promotions can change.
Limited companies require a little bit more patience. You’ll still pick a bank you want to set up with like above and they usually have the same 12 months free banking deal but you’ll normally have to book a meeting with the business bank manager. At that meeting, you’ll need to bring the following;
Certificate of Incorporation
Proof of Identity
Proof of Address
Business plan (if applying for overdrafts/credit cards/loans as well)
The bank you choose may vary but they will give you a list of what to bring to the meeting. Once you’ve had your meeting and the account is set up, it can take two weeks for the whole process to finish. Some banks can do this sooner but be prepared for a wait. You’ll receive your cards and pin in the post just like when you open up any other type of account.
So you’ve got a brand new business in the works. It’s almost ready to start trading. Now, think about your record keeping. How are you going to keep all your sales invoices, receipts, bank statements - traditionally people would keep these in big red cashbooks or lever-arch files but these days its much more flexible and there are paperless options.
Cloud software like Xero help you to keep track of your business position and keeps all your data in one place. You can raise your sales invoices from here and store all your receipts and purchase invoices too. Apps like Receipt Bank help to keep you paperless while saving time and you can hook up to many other add-ons based on the needs of your business, like inventory management, cash flow forecasting or an eCommerce solution. Xero can be accessed anywhere where you have an internet connection so you can work wherever you are, whether that’s in your office or on the go.
There is the option of spreadsheets - these are quickly becoming outdated and although cheaper, it is harder to see how your business is doing on a month-to-month basis.
You could also just give it to your accountant at the end of each year. I don’t recommend this and it leads nicely on to our next step;
Picking an accountant
You're a business. You’re here to make money and so that comes with being taxed on that money. Accountants are much more than just working out your tax though, or at least, they should be. If you are about to hand over all your end of year invoices and receipts to your accountant so you can receive a set of accounts 8 months later then they are not helping your business. There are modern accountancy firms, like ourselves, who will be your business guide and support you as well as advise you. Yes, we do all the tax calculations and make sure you save money but a modern accountant will do so much more.
For instance, we’ll help get you set up on Xero and integrate the add-ons that you need for you then we’ll train you on how to use it so you’re an expert and can get the most out of it. You get stuck, you let us know. You have a question, you ask us. We’ll plan to work towards your goals and can sit down and make that business plan if you haven’t already done it! You have financial data at your fingertips whenever you want and you’re paperless as well. Now, modern accountants are more expensive than the old school methods. Usually due to the extra support that you’ll get but we will pay for ourselves in time and tax savings. Here at Cone, we have fixed fee packages as well so you always know what to expect and this is then paid on a monthly basis rather than receiving one scary invoice at the end of the year.
The cheaper accountant might appear to be the best deal but if they cost you a load of money in potential lost revenue or from lack of advanced tax planning then did you really save money or did you just shoot yourself in the foot?
Brand your business
This should be incredibly important for any business, whether you are a one-man band or setting up to grow into a massive powerhouse. Your brand is you. You are your brand and you need to make sure that you are appealing to your customer base. (Remember that business plan? This comes in handy here!)
The most successful businesses have a brand that people relate to and enjoy. They resonate with it and so they want to buy from you. They want to experience your company. A poor brand doesn’t do any of these things. There are no excuses either - tools like Canva are FREE and they are very easy to use. If you’re worried that your budget won’t stretch to your branding then use that. Logo design and branding is something I would recommend to be at the top of your investment list though - things that you are going to improve or develop once you have the funds to do so if it’s out of your budget from the beginning.
The brand isn’t just the graphics and the logos though either. It isn’t just having a Facebook Page and a Twitter set up. It’s not posting every day on Instagram or dipping into Snapchat. Your brand is your business so how you respond to customers, how you respond to people who comment on your social media, that is your brand. What are your values, will you be serious, are you going to use humour? The entire experience of how your business interacts with the world, how it looks, how it engages is the entire make up of the brand. Good design is important but don’t forget the human side of your business because people buy people, not a business. Unless your Apple, then people will buy whatever you put out.
Over to you
You should now have a good idea of how you want to set up your business, how to get a plan in place, what to do to set up your bank account, what to look for in a modern accountant (if you’re still not sure, book a call with us for free right here and finally, start thinking about your brand.
By starting your own business, you have become an entrepreneur. I don’t believe you become one of these until you fully commit to running your own business and by making this step, you are unlocking a lifestyle to work on your terms and hopefully make a better living for yourself as well. A quote that sticks with me is that “An entrepreneur is someone who will jump off a cliff and figure out how to safely land on their way down”. It’s thrilling but make sure you stop to enjoy it as well.
You can contact us here at Cone Accounting if you have any questions at all on starting up. Remember, we offer business planning, business registrations, company incorporation and ongoing accountancy and business support. If you get stuck at all or would like to have a free chat then click here to book a time in my diary. You can also fill in our Get a Quote form first if you’re interested in working with us.
About the author
Ben Nacca is an accountant but is nothing like the stereotype you have visualised in your mind! He has worked in the accounting industry for almost a decade and is CEO here at Cone.
Ben loves travelling the world, playing video games and playing his acoustic guitar whenever he finds the time between spending time with his two chihuahuas, Hugo and Pablo!