Starting up your new business, what you need to know.

Posted on 4th March 2021 by David Rudd

Setting up a new business can be daunting, but by taking the right steps and applying the right structure early will give you the best possible chance of success.

Our 5 top tips are here to help:

1) Plan before you start:

When starting a new business, it’s essential that you consider what you’ll need, and what your business will look like. The structure of your business is an important consideration and can have lasting implications for your future, whether your intention is future sale or passing onto your family.

Whichever you choose will change the sort of tax you pay.  The options are: 

•   Sole trader – you’ll be taxed personally on profits earned, with personal tax due 31 January (and potentially 31 July) after the end of your year. 

•   Partnership – personal tax will be due on your share of the profits, again with personal tax due 31 January (and potentially 31 July) after the end of your year

NB a great tool from HMRC to plan for personal tax can be found below:

https://www.gov.uk/self-assessment-ready-reckoner

•   Limited company (Ltd) – legally a different entity to you and your personal assets.  Tax for the company profits is payable 9 months and 1 day after the year end.  Potentially there is personal tax to pay on your income from the company.

•   Limited liability partnership (LLP) – similarly to the Ltd option, legally separate from you and your assets.  However, the tax due will be on you personally, with payment dates of 31 January (and potentially 31 July).

We always suggest setting up your business from the start in a way that you can flex into the future will be worthwhile.

Cash will be king for the first few years, so automated collection is worth looking into. Try to look at the approach that your aim for the business is for it to run without you (one day).  This means automation and documentation of how you do what you do are critical.

2) Finding the break-even point:

This figure will be an important indicator of when your business begins to make a profit. One way to work this out is a cash-flow analysis.  This will look at your fixed costs (those you have to pay regardless of how much you sell), variable costs (those which fluctuate with activity) and profits (one of your key indicators of how well your business is performing).

The idea is to get to the stage where you know how many products or hours you need to sell to cover the costs of running your business.

A great idea is to have a weekly or even daily, breakeven number.  This makes targets easier to achieve.

3) Small Budgets:

There is no doubt, setting up a new business will be hard and you’ll usually be on a tight budget.

A key difference between being employed and running your own business is when tax is paid.

Our advice to any business is to plan ahead.  As a business start up, if you are putting aside your estimated tax each month, the first tax bill will become less of a surprise (bear in mind that your first personal tax bill will be 31 January, so right after the festive period!).

Using cloud accounting technology to automate as much of your bookkeeping as you can will not only save time but also give you visibility on your profits.

It is important to start your business with a clear marketing strategy.  Using social media is a great start.  Building an audience of potential customers via Twitter, Facebook and LinkedIn can be achieved fairly quickly with minimal costs.

4) VAT:

In the early days of your business, you may need to consider VAT registration, which we’re able to help you with here at Steven Burton.

This is a tax is added to goods or services sold. The standard rate is 20%, however, some goods have a reduced rate.

You can register for VAT voluntarily, but you need to consider your customer base.  Will your customer base be the general public?  If so, this could mean your price will need to be increased by 20% to account for the VAT you need to pay to HMRC on sales made.

Before you move forward with anything related to VAT registration, we recommend speaking to us first.  We can then help you to navigate the best route for you and your business.

5) Business rates:

If you run your business from a non-domestic property, you could be liable to pay business rates. This is similar to council tax, in that local authorities will let you know what you need to pay. These rates are calculated by the Valuation Office Agency on a ‘rateable value’, or its estimated market value.

A rateable value between £12,000 and £15,000, may be eligible for relief.  A value of below £12,000, may mean you have no liability to pay.

We hope these tips help you and your new business to navigate through the start of your lifecycle. If you’re looking for more advice like this, someone to bounce ideas off or a helping hand take a look at our startup support service.

Having questions at this stage is completely natural, feel free to contact our team as we have helped a number of clients in a similar position to you, where we have helped to maximise profits and mitigate liabilities.