Thinking of starting a business? If so, taking time at the outset to consider next steps from an accounting perspective is vital.
Chartered accountant Katrine Richardson of Metric Accountants shares her tips for start-up success.
1. Write a business plan
It cannot be stressed enough how important it is to prepare a business plan. In the same way that you wouldn’t set out on a journey without a clear idea which route you intended to take, you should not try to run a business without a clear idea of what you want to achieve and how you intend to get there.
A business plan should cover the main products/services being sold, the demand for these products / services, the business’s aims and objectives, competitor analysis, the marketing strategy, location, business image, cashflow projections and a forecast, which should include breakeven analysis (the point at which your total sales equal your total costs).
2. Choose the right business structure
Many people are not aware of the legal and tax differences between operating as a sole trader, a partnership or a limited company. These differences can have a huge impact on the amount of tax to be paid, as well as affecting your responsibilities /obligations as the owner and manager.
Establishing a limited company can be a great way to minimise tax and limit your personal liability (should the business fail). However, you should not form a limited company just because you think it might be best for you. Always speak to an accountant to ensure that you make the right choice for your business.
3. Put good systems in place
Setting up procedures early on not only improves customer service, it can also save you money. If you have slick systems, it improves efficiency and reduces the need to correct mistakes in the future, which all helps to improve your bottom line.
For example, take invoicing. How and when are you going to invoice your clients and monitor whether they have paid? Whilst setting up a process is not as exciting as say, making a sales pitch to a new customer, it can have a dramatic effect on the profitability of your business and successful companies are well aware of this.
4. Claim all the expenses you are entitled to
All business receipts should be saved and recorded. If you are unsure whether an expense is a legitimate business cost, let your accountant decide. Failure to so will lead to higher business profits and higher corporation tax.
Additionally, many business owners are not aware that it is possible to claim expenses incurred before you commenced trading. Provided it is a genuine business expense, a receipt is kept and the nature of the activity carefully recorded, it is possible to deduct these costs, reducing your tax bill in the process.
5. Appoint an accountant as early as possible
The sooner an accountant is involved in your business, the more value they can add. For instance, most tax saving initiatives need to be discussed and initiated before the business’s accounting period finishes.
If a business only appoints an accountant to complete the accounts once the accounting period has finished, this opportunity is likely to be missed.
Questions to ask a prospective accountant include:
- Do they agree a fixed fee in advance, so you are able to discuss business opportunities without watching the clock?
- Would they provide you with management accounts throughout the year so that you know, at regular intervals, how your business is performing?
- Would they provide guidance to help you make your business more successful as well as preparing your accounts and tax return?
6. Keep a separate business bank account and use it properly
Maintaining a separate bank account for your business transactions is vital if you form a limited company. The company’s cash does not belong to you, the owner-manager, until it is paid to you (say, via salary or dividends).
The good news is that banks are falling over themselves to get your custom. It is common for banks to offer various incentives such as 18 months free banking and free business guides, so shop around.
Katrine Richardson is a director of Metric Accountants, a firm of chartered accountants specialising in accountancy, tax and business advice for entrepreneurs.
Metric Accountants is currently offering a 10% discount on first year core accounting services. To get a free, no-obligation quote, simply call 0845 304 5473 or email email@example.com quoting “Twenty Ten Club”.
For more information visit www.metricaccountants.co.uk