How to Start a Business
Commencing a new business venture is an exhilarating endeavour. Nevertheless, there are numerous practical decisions to be made prior to launching your new business. Setting up your business correctly from the outset is imperative, as it can help circumvent many potential pitfalls down the road. Therefore, having a clear and realistic vision of your business's trajectory is a prudent move.
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While there’s nothing quite like the thrill of
awakening each morning, knowing that you oversee your destiny as your own boss,
it’s important to acknowledge that managing your own business involves an array
of practical considerations and legal responsibilities that may not initially
come to mind.
Questions abound: Will you be operating a physical
store, establishing an e-commerce website for international trade,
manufacturing your own products, or providing professional services? Do you
possess an innovative, untested concept that you’re eager to bring to life, or
are you sticking with your current field of expertise? Regardless of your
chosen path, it is imperative to conduct thorough market research.
Once you have made your decision regarding the type
of business you intend to run, it’s time to deliberate on the legal structure
of your enterprise. The chosen structure will significantly impact the type and
quantum of taxes you are obligated to pay, the operational expenses,
administrative obligations including record-keeping, filing requirements, the
regulatory burdens you must bear, as well as your legal liabilities.
One of the crucial aspects to consider is how to
finance your business. Will your venture require significant initial capital,
or can it be operated from your home office with a laptop? Do you have the
necessary financial resources, possibly through a severance package, or will
you need to seek funding from financial institutions or other sources? If you
wish to secure financing, it is imperative to clearly outline your funding
requirements and intended allocation of these resources to convince potential
lenders that your venture is a sound investment.
Conducting extensive research and meticulous
planning during the early stages of your business is of utmost importance to
ensure that you do not waste precious time and financial resources on an
Structuring Your Business: The choice of business
structure is a pivotal decision with far-reaching consequences. Seeking
professional guidance, such as that of an accountant, is often advisable.
Selecting the appropriate business structure is
among the most significant choices to be made when embarking on your
entrepreneurial journey. It profoundly influences your legal responsibilities,
public and market perception, administrative obligations, liabilities, and both
direct taxes (e.g., income tax, corporation tax) and indirect taxes (e.g., VAT,
However, it is reassuring to note that, while each
business structure has its advantages and drawbacks, changing the structure
later is possible if your initial choice no longer aligns with your
requirements. Engaging in a discussion with your business advisor or accountant
is crucial in this regard.
When structuring your business, you will typically
have the following options:
- Sole Trader: This is the most straightforward way to operate your business with minimal registration costs and ease of setup. While it involves minimal bureaucracy, you are personally liable for any business debts. However, it may not be the most tax-efficient option if your business has a turnover exceeding £50,000.
- Partnership: In a partnership, two or more individuals share business risks, costs, and responsibilities, with profits distributed accordingly. Limited liability partnerships offer more legal protection, as your liability as partners is restricted to your investment in the business. Partnerships, both incorporated and unincorporated, are considered transparent entities for tax purposes.
- Limited Company: Private limited companies carry ‘ltd’ after your name and offer substantial legal protection to your owners, holding a distinct legal status. You are responsible for your finances, and shareholders are not personally liable for company debts unless they have provided guarantees. Registration with Companies House is obligatory, and annual accounts and returns must be filed. Public companies, denoted by ‘plc’ after their name, can be listed on stock exchanges, and their shares are available for public trading.
Registering your Company: The process of
registering your company is typically straightforward and cost-effective.
Registering your company is typically a streamlined
process that can be completed online using the Companies House web
incorporation service, typically for a £15 fee. Prior to registration, you will
need the following information:
- Company name and address
- Details of directors and a company secretary (if applicable)
- Breakdown of shareholder capital (number of shares allocated to individuals and their value)
- Payment method
Before selecting your company name, ensure that it
is not already in use by another entity by consulting the Companies House
WebCheck service. Furthermore, cross-reference it with the UK Intellectual
Property Office’s Trade Marks Register to confirm that the name does not infringe
on any existing trademarks.
Your company must possess a memorandum of
association detailing its name, registered office, and business nature. It
should also have articles of association outlining the operational regulations.
These documents can be downloaded from the Companies House website if used
Startup Costs: Creating a budget for your startup
expenses is essential to prevent overspending in some areas and financial
shortages in others. These costs will depend on your specific industry and
business scale. Some expenses to consider include:
- Company formation and filing fees
- Market research
- IT equipment and software
- Internet domain registration
- Stock or raw materials
- Business premises, rates, and utilities
- Internet and phone services
- Employee salaries
- Business cards and stationery
- Vehicle leasing
- Equipment and machinery
- Financial and banking costs
- Accountancy and legal fees
To ensure you don’t overspend or encounter
financial setbacks, allocate a budget to each expense category. Maintaining
fiscal discipline, especially during the early stages of business when revenues
are limited, is crucial. Record-keeping is vital for accurately tracking income
and expenses, which is essential for preparing your annual business accounts.
Whether you are a freelancer or running a small
business, various tools and software, including Excel spreadsheets or online
accounting software, can help you manage your finances. For more complex
businesses, software packages from providers like Xero, Sage, QuickBooks, and
KashFlow are available.
In the beginning, when your revenue may be limited,
keeping a close eye on your expenses and adhering to your budget is vital to
ensure your business remains financially sustainable.
Effective record-keeping is a critical aspect of
your business, ensuring you maintain an accurate log of your financial
transactions to facilitate the preparation of your annual business accounts.
Expenses incurred before registering your business with HMRC or Companies House
are typically recoverable. Generally, expenses are deductible if they were
incurred exclusively for business purposes.
Understanding and managing your startup costs will
enable you to allocate your financial resources efficiently, minimize financial
risks, and steer your business toward profitability. Financial discipline and
diligent accounting are essential for business success from the outset and
throughout its lifecycle.