Planning, setting up, then launching a new business is an exciting time. It’s also a busy time, with the amount of work needed often taking new business owners by surprise.
One aspect that can fall by the wayside when it comes to planning, is the accounts side. Here are some basics to think about, to help you launch a new venture successfully.
Keep Business and Personal Finances Separate
Many banks offer incentives to new business owners in the form of a free banking period, usually a year. It’s easy to open a bank account for your business, and you won’t need any complicated paperwork or a business plan unless you want to borrow money straight away.
If you’re in any doubt, give your favoured bank a call and have a chat about a business account, what terms they offer and what they expect from you in return.
It’s important to keep business and personal finances separate because:
- It’ll save you time and effort when you’re updating your finance records since you don’t have to wade through household expenses.
- It makes your business transactions clear and simple for at-a-glance checking.
- It’s easier for your bookkeeper to find and update your records.
- It can cut down on your end of year accounting if you use a professional accounting service to complete and file your tax return.
No established business owner would consider running their professional finances out of their personal bank account, but it can be tempting when you’re just starting and you’re not sure what you need.
Take Professional Accounting Advice
While straightforward, small businesses can often get by with a minimum of professional accounting or bookkeeping help, it’s particularly useful to discuss your potential accounting needs with a professional.
Accountants can guide you in the right direction and make sure everything is set up properly before you hang out your shingle. Some business models need in-depth understanding, such as accounting for charities. If your business idea falls into this sector, you should consider consulting someone with this specialised knowledge.
You might also need some initial advice on which business structure would best suit your idea or goals.
The various business structures have different set up needs before launch, and it’s tricky to know you’re on the right track. While it’s possible to incorporate a limited company yourself, for instance, it’s a lot more complicated than simpler structures and maybe that’s not what you need.
Understand The Different Business Structures
It’s worth running over the different business structures and a few of their pros and cons.
If you’re a self-employed individual, you work solely for yourself and have no employees, you’re a sole trader. This is the simplest form of business structure. You keep all the profits, bear all the responsibilities and professional liabilities, fill in a self-assessment tax return each year, and have no limits on the amounts you can earn.
If you’re in business with at least one other person, you have a partnership. You share the profits and the losses, along with the risks and the costs. All partners are self-employed, and as such are personally responsible for any losses or debts, including those run up or caused by the other partners. If you’re opening this type of business, get some sound legal advice and have a properly drawn up contract.
Limited Liability Partnerships (LLP)
Whereas in a standard partnership each partner is wholly responsible for the business, with an LLP your liability is limited to your investment. Partners can be individuals or companies. The business must be registered with HMRC and Companies House.
A limited company is a legal entity, with finances separate from the owners. It’s owned by shareholders and run by directors. Any profits left after the company pays Corporation Tax can be distributed to shareholders in the form of dividends. There are annual reporting responsibilities to both HMRC and Companies House.
Although there are distinct advantages in running a limited company, there are also drawbacks. In forming a limited company or a limited liability partnership, for instance, you’ll need the company’s memorandum and articles of association and it’s vital these things are accurate. You can do those things yourself, but expert advice will make sure it’s done properly.
Know Your Tax Deadlines
Keeping your business records and finances up to date makes it easier to meet deadlines.
If this is challenging for you, get some help with your bookkeeping. Missing deadlines or filing incomplete or incorrect tax forms can lead to delays and missed deadlines. That gets expensive as missing them incurs fines and late fees which rise for each day you miss.
There’s no single path to creating good business accounting records, but there are standard methods and requirements. In the excitement of planning or launching a new business, try not to let yourself neglect this important aspect of business management.