Last week in my post about starting a business and becoming an entrepreneur, I discussed several key aspects to setting up a successful business, including where to start, thinking about business ideas, research, testing and creating a business plan. I also mentioned that there’s more to setting up a business than just the above, including registering your business with Companies House, setting up finances, accounting, tax and insurance.
Over this post I am going to share with you further tips to starting a successful business. Enjoy the read…
Registering your business with Companies House
There are several different business types when registering a business. The most common being, sole trader, limited company or partnership. When I registered The Grad Hub, I had my accountant do all the hard work. They fully advised me of each business type and how my business would fall under each. The decision came down to how much liability I wanted to take on, should it not succeed and that I was already in a 9-5.
A sole trader is a self-employed person who owns and runs their business as an individual. You are personally responsible for any losses your business makes and any debts accrued, which could mean your personal assets could be at risk should creditors not get paid. You have absolute control over your business, it’s assets and profits after tax.
The UK government website states you need to set up as a sole trader if any of the following apply:
- you earned more than £1,000 from self-employment between 6 April 2019 and 5 April 2020
- you need to prove you’re self-employed, for example to claim Tax-Free Childcare
- you want to make voluntary Class 2 National Insurance payments to help you qualify for benefits
Unlike the other business types, a sole trader does not need to register with companies house. You do however need to tell HMRC that you pay tax through self-assessment and you will need to file a tax return every year. You also need to manage certain things separately, including having a business bank account, choosing a trade name that isn’t offensive, contain sensitive words or copy that of an existing business, and including the name of the business on invoices, letters and receipts.
A limited company is where the company has a legal identity of its own. You are no longer wholly responsible for it and the finances will be separate to your own personal finances. As a limited company you are either limited by shares or limited by guarantee.
Limited by shares companies are those companies that make a profit. With this type of business you have shareholders and you can keep the profit after paying tax. Most companies are limited by shares. This means that each shareholder’s responsibility for financial liability is limited by the value of shares they own. The good thing about this compared to being a sole trader is that any business debts will become those of the company and not your own personal debts or personal assets.
Limited by guarantee on the other hand are those ‘not for profit’ companies. The difference here is that the company has guarantors and a ‘guaranteed amount’ and you invest your profit back into the business.
When I set up The Grad Hub, I went down the route of a Limited Company. I wanted to keep my personal finances separate to my business, especially as I still work a 9-5. I couldn’t go down the sole trader route as I am not self-employed and I didn’t have a partner to go into business with, so this was the best solution for me. Your circumstances may be different to mine, and I would advise speaking to an accountant before setting up a business.
This is the simplest way of 2 or more people running a business together. You and your partners are responsible for running the business, including personal responsibility for paying the bills. Partners share the business’s profits and each partner pays tax on their share.
A partner doesn’t have to be an actual person. A limited company counts as a ‘person’ and can be a partner.
In addition to the normal partnership listed above, there are two types of partnerships you can choose from.
Limited Partnership – with a limited partnership the liability of debt can fall on the specific partners rather than shared equally
Limited Liability Partnership (LLP) – with this type of partnership partners are not personally liable for debts or liabilities.
Setting up finances and an accountant
Before setting up The Grad Hub, I had a chat with an accountant for advice on deciding the best options available for my business and then I left it in the capable hands of my accountant to set me up and get me running. It saved me a lot of time and allowed me to get on with creating content for The Grad Hub.
How did I find my accountant?
It’s good having connections. I have a close friend that already has a well-established business and he introduced me to an accountant based in Shropshire. I’m based in London and thought ‘how would this work’, but to be honest, you don’t actually need to see your accountant, unless you are a big successful business, and even then, the accountant will come and see you. So, all my communication with my accountant has been through the phone and email.
What does your accountant do for you?
Your accountant is key to your organisation and will help you balance your books, make sure you are making a profit as well as looking for ways to reduce costs. The primary role of an accountant is to prepare your financial records. They make sure your taxes are paid on time and some will even help create plans of action for improved financial well-being.
My accountant set up my business on Companies House and on a yearly basis does my accounts. All I need to do is send them my expense receipts and bank account statements. They then do the rest. An accountant is vital to your business in order to be successful and finding a good one is always best through word of mouth.
How do you keep track of your finances?
If you want to have an accurate picture of your expenses on a monthly basis, you should consider keeping an eye on your expenditure and there are many ways to do this.
- Create a spreadsheet of your expenses. This is by far the simplest way to keep track of your expenses. By using a simple program like Excel, you can easily organise and create graphs to better understand your spending. I am old fashioned, so I keep track of my finances via this route. My accountant also sent across a spreadsheet to help me track my expenditure, so have a chat with your accountant if you are struggling.
- Download an app. There are many free and paid for apps that you can download to help track your finances. The best ones out there I can see are:
a. iSaveMoney – offers a free daily & monthly budget planner.
b. Easy Home Finance (android) – record every income or outcome you made on your mobile app immediately
c. Wallet – a market leading personal finance manager, built to help you save money, plan for the future, and see all your finances in one place.
d. Emma Finance – a budgeting app and expense tracker that helps you save a little bit everyday by showing you where you spend your money and identify areas for improvement.
e. Money Manager – the no.1 financial planning, review, expense tracking and personal asset management app for android.
- Use websites. One that came to mind is Money Dashboard. It’s the UK’s best personal finance website and app. You can connect several bank accounts, create budget plans, taken a look into your future and set yourself up for success all on one dashboard. The other that comes to mind is quickbooks. You’ve probably seen the TV adverts recently. Get a real-time view of where your business stands. See a 90-day cash flow forecast and access easy-to-use dashboards and reports that help you make data-backed business decisions. Taxes, payroll, invoices, bills and expenses – all covered in one simple subscription.
How Value Added Tax (VAT) works?
Another thing you should think about is VAT. One important thing to note is that you can only charge VAT if your business is registered for VAT. So, if your business has an annual turnover of more than the current VAT threshold (£85,000) then you must register for VAT and complete a quarterly VAT return.
Once registered you must charge VAT on your goods and services you sell to customers and businesses, which is currently 20% in the UK. And, you may claim any VAT you’ve paid on business related goods and services.
Don’t forget, a VAT registered company must report the amount of VAT you’ve charged and paid to HMRC, through your usual VAT return, which is done every 3 months. Your accountant can probably handle this for you, so have a chat with them.
You’ve got everything lined up and now you’re thinking am I insured. What type of insurance do I need? Not yet another thing I need to sort out…
Yes, this is another crucial part of your business you need to arrange. When considering business insurance, it’s important to think about the covers you might need for your business. In a nutshell, employers’ liability cover is a legal requirement for most business with staff, even if you have temp staff helping you out. Public liability is important if you are in contact with the public, i.e. having a stall at an event. And, professional indemnity insurance is important if your company offers advice, saving your neck should you offer anyone some bad advice.
The following is not intended as legal advice. It is based on my own experience and does not encompass every possible policy plan. Nor does it guarantee that all policies will include everything mentioned. You should discuss your individual needs with your agent and/or lawyer.
So, which do you need for your business?
Have a think about what your business offers and the risks you need to cover. Only last year I decided to take out cyber and data insurance. As I have subscribers to my business and with the increase in businesses being hacked, I didn’t want to take the risk. This cover ensures I am fully covered should I suffer from unauthorised access to personal data, any cyber interruption, hacker damage, extortion and more.
Cyber and data insurance is just one of many types of insurance. Here’s a few more to think about…
Public Liability Insurance
If your business comes into contact with the public, whether that is from your own premises or externally, then you should consider taking out public liability insurance. This covers you for any compensation claims for injury or damage made by third parties. If your business is in retail, restaurants, trade, hairdressing/salons, then this is something you should consider.
Professional Indemnity Insurance
This type of insurance is important if you plan to give out advice or if you offer a professional service to other businesses. This insurance will cover you for costs you might face if your advice or services cause a client to suffer a loss. If you’re a surveyor, accountant or architect, this type of insurance is something you should consider.
Employers’ Liability Insurance
This type of insurance covers you for any staff you may have. You will be covered for any claims a member of staff may have because they have suffered from an injury or illness due to their work. You can be exempt from the legislation if you employ close family members, check this out with the Health and Safety Executive (HSE) or seek further advice.
Bloggers’ and Influencers’ Liability
Did you know this existed? As a blogger, vlogger, or influencer, the risks you’re exposed to are global, so specialist cover could be essential.
Everything you do or say on social media could affect the reputation you are building. If you mistakenly defame someone or breach someone’s intellectual property, you could suffer huge consequences. You might not need this should you have the above insurance polices, so seek advice before setting out.
There’s many more type of insurance to consider, including buildings insurance, business equipment insurance, contents insurance, business interruption insurance and more. I took out The Grad Hub’s insurance through Hiscox, but have a look at Simply Business, they are tailored to small business needs.
So, there we have it. Over this post and my post on Setting up your business and becoming an entrepreneur, you should have enough information to help you start a business and become a young entrepreneur. Please seek advice from your accountant, lawyer or business advisor before setting up your business and good luck.