You decide to start a business, you have a brilliant idea to turn something you love doing into your new career.
Hold your horses, before you dive in feet first. So many people start without thinking about the financial side of things, but if you don’t, how will you gauge how successful you are?
If you don’t arm yourself with the right financial information, it’s a bit like trekking to the North Pole without a map – you will have no idea where your business is going!
If bookkeeping and keeping on top of your numbers fills you with dread, Alison Edward of Simply Balanced Solutions gives her top 10 tips on what to consider when you’re first starting out:
1. Sole trader or Limited Company? There’s lots of advice on this and the answer depends on the type of business you’ll run. If you don’t expect to have high annual profits, your business isn’t very risky and you are not sure how long your business will run for, then you’re probably better off starting as sole trader.
2. Register with HMRC: Don’t bury your head in the sand. Register with HMRC, even if you aren’t making a profit yet. Many people start out with a hobby which gradually grows into a profitable business. If you don’t register within three months of starting self-employed, you run the risk of being fined. (You don’t need to register as self-employed if you set up your business as a Limited Company).
3. Bank account: Have separate bank accounts for business and personal spending. If you are setting up a limited company, legally you must have a separate bank account in the limited company’s name. If you are a sole trader it can just be a regular current account, try to avoid a business bank account initially as they come with high charges. The main thing is keep business and personal money separate.
4. Keep on top of your bookkeeping: It’s not as scary as it sounds. You just need a simple system to record everything – your spend and your sales. A simple spreadsheet might be sufficient. Alternatively, consider using accounting package. The cloud has made this cheaper and more accessible, so we love working with Xero but there are other options too. Do it regularly – weekly or at the very least monthly. It’s much easier to remember what that receipt was for, if it was only a few days ago not six months old! Little and often is always best, it will stop you panicking when it comes to preparing your tax return.
5. Keep EVERY receipt: File them in some sort of order that can be easily accessed. You can scan and store them electronically; there are lots of apps that will help with this. For example Receiptmate for IOS, or Smart Receipts for Android.
6. Make use of free resources: HMRC run Webinars covering everything from what expenses you can claim, to Payroll to VAT. Find out more http://www.hmrc.gov.uk/webinars/. Lots of professionals offer free consultations – take them up on the offer.
7. Learn what expenses you can and can’t claim for: The basic rule is, are they “wholly and exclusively” for a business? The exclusivity is determined by the type of business you run. E.g if you run Cattery then you could claim for cat food, but not if you’re a hairdresser buying food for your cat! Once you do find out what you can claim, remember to claim for everything that you can. Things that you could claim are, for example: A home office allowance, travel to craft fairs to sell your goods, etc. Just be sure to check your eligibility.
8. Reconcile your bank accounts: Each month, compare the transactions in your bank statement to those in your records. By doing this you can keep on top of how much actual cash your business has. It highlights any unknown transactions you may have missed, giving you a better idea of spending.
9. Budget for tax: If you’re a sole trader and only earning from your business, then the current personal allowance is £10,000 per year. That’s profit, not sales. Don’t forget to budget for National Insurance as well, currently £2.75 per week – less than the cost of most lattes! If you make a profit over £7,765 you will have to pay 9% on anything over that amount.
10. Last but not least: If it all gets too much, call in the professionals. A bookkeeper can save you both time and money, freeing you up to do what you love – building your business. Whether you want someone to set up a system for you to maintain yourself, or take over the bookkeeping altogether, there are options out there to suit your business’s needs and budget.
Alison set up Simply Balanced Solutions bookkeeping to find her own balanced solution to juggling work and family life. She loves working with small and growing businesses, helping them balance their books and give them back their free time to enjoy life.
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