Starting a new business is exciting! If you’re thinking of setting up a business, you’ll probably be looking forward to doing things your way without pressure from managers and directors trying to get you to do things which make no sense.
Rushing into starting a new business can be tempting – it can’t be that hard, can it? Yes of course it is possible to start straight away with no planning or thought – however, the most successful businesses are those that have considered what they need to set-up.
The first question to ask yourself is whether you’re ready to start. Have you really thought about the business opportunity enough? Is there enough potential for money to be made? Can you attract new customers without paying too much? Why not carry out a small amount of market research to check there is a need for the goods and services you’re offering. If nobody else is offering what you're planning to sell is it because nobody wants it or because you are ahead of the curve?
You may like to watch our "60 second Guide to Starting your Business."
Other things that need to be considered include:
Think about the finances you’ll need to run your business. It’s likely that in the first couple of months you won’t be earning much – do you have enough money to cover your lifestyle while you set up the business?
If you’re selling goods, you’ll probably need some capital to start the business (even if you run a services business you’ll need some start-up capital). Plan out the capital that you’ll need to start the business then consider how you’re going to get the money together. There are a number of options:
- Bank Loan – probably the most popular option. You’ll need to go to the bank with a business plan in hand so they can see the predicted financial return from your business. The bank will need to be certain that they’ll get their money back! Although you have to pay interest on the money you borrow, the rates are usually quite competitive.
- Overdraft – less popular than a loan and with good reason! Overdraft rates can be pretty hefty so if you don’t pay off your overdraft quickly, your business could be in jeopardy.
- Savings – if you’ve got enough saved away, it’s certainly a viable option. Furthermore, most banks won’t loan you money if you don’t inject some of your own cash into the business.
- Family and friends – a good option as you can negotiate easy terms with your family and friends with no interest payments. However, beware – borrowing money from friends and family can put strains on relationships no make sure you put some sort of process in place for paying them back.
- Investor – you will have to trade some shares in your company in order to gain investment however, it can be a great way of injecting money into your business. If you have a silent investor they tend not to have much say in the running of your business. Alternatively, your investor might want to be more hands on with the business – through which they can share a wealth of knowledge with you in order to develop your business.
- Grant – in certain industries, you could receive government grants to help you finance your business. Speak to an accountant for more information about this.
Most of our small business clients, initially started running their companies part time, read our guide to starting up part time here, whilst still in full time employment. This can be a good way of testing the market and making sure that your business works. If this is the case, it’s likely that you’ll be working from home to begin with. With limited overheads and equipment at your fingertips (internet, phone etc) – this can be a great way to start your business.
However, as your business starts to pick up, you’ll need to spend more time making it successful. You may choose to work full time on your business and at this point, it might be worth setting up an office outside of the home. Working on your own in your home might sound a good idea at first but we’ve found many of our clients find it increasingly difficult to differentiate between home and work. This is crucial to the success of your business.
Once you’ve decided on the finance you need and the premises you’ll be working from it’s a good idea to think about business structure. Predominantly, business owners tend to set themselves up as a sole trader or Limited Company.
It’s important you make this decision with the help of a financial advisor and/or accountant as it can affect your take home pay after tax.
The implications on the tax you pay will be dependent upon the type of business you set up. If you decide to set up as a sole trader your taxes will be simpler than if you go limited. However, as being limited is one of the most tax efficient ways possible and offers tax planning opportunities being a sole trader cannot. You need to think long and hard about what is best for you, and no this doesn't mean asking you friends and family (that is unless they are accountants and then it's okay), a decision of this nature is best discussed with an accountant (we would be happy to help).
You’ll also need to think about whether you want to register for VAT (read our small business guide here) as well as whether you want to set up PAYE (advice on paying PAYE). An accountant can help you decide the best way to set up your accounts and administration.
The best way to start a company is by putting a business plan together – this will detail your initial financial projections, the structure of your company as well as the procedures and administrative jobs that you’ll need to adhere to. Crucially, you must sort out your admin early on. As your business grows, you can get bogged down in admin and paperwork – make sure you appoint an accountant and financial advisor early on.
For a more comprehensive list of things to consider when you start a business, have a look our free guide to starting a business.
If you'd like to speak to Easy Accountancy about setting up a small business call us on 0500 234111 / 01442 275767.