Starting a business guide

Starting a business guide

Starting a business guide to help you to get started with your business.

Starting a business is an exciting journey to embark on and it gives you a sense of total freedom. You tell yourself what to do and you are in control of your business and your time.

Here are the questions to help you get started with your business.

Step 1 : What business structure is suitable for your business?

Choosing the right form of business structure when starting out your business is important. Considerations should include the legal, tax, and business administration aspects of the legal entity you are going to use.

  • Sole Trader or Limited company – suitable for one man business
  • Conventional Partnership or Limited Liability Partnership – if more than one person jointly interested in business

If you decided to use a limited company for your business, you may incorporate your company directly with Companies House or use an accountant’s service. Your company registration is usually can be completed within one business day.

Step 2: How are you going to finance your business startup?

Financing your business is another important thing in starting your business. The startup capital required is dependent on your business.

For example, if you can use your personal computer for the business you may not need to buy new computer equipment.

However, if your business required you to have an office then obviously bigger sum of startup capital is required as signing up for serviced office lease required at least 3 months rent deposit and 3 months rent in advance. Some commercial property agents may willing to negotiate the lease terms but you still have to prove that you are capable of paying the office rent.

You may consider to use own cash/savings, loans from friends and family and you may sell your surplus personal assets for cash.

Borrow from banks and financial institution is another option. You will need to prepare a business plan to outline your business commercial viability.

Step 3: Who can help your business

Accountants can assist you to setup your accounting records system right from the beginning and advise on your business related financial matters.

Solicitors could advise you on your business contracts and preparing legal documents for you.

Business Link. It is a UK government supported organisation that provides useful information to businesses of all sizes.

Step 4: How much would it costs? – Accountants’ fee

Traditionally accountants charge their fee by the hour. There are also accountants offer fixed fee accounting services.

Whether fixed fee or charge by the hour, ask for couple of quotes to compare. Understand what included in the quote and what is extras.

If you intend to use limited company for business, it may be a good idea to seek accountants’ advice as soon as your company have been setup.

Step 5: Do you have to register for VAT?

You are not required to register for VAT if your sales are below the VAT registration threshold or if you only make “exempt” or “out of scope” VAT products and services.

However, you may opt to register for VAT voluntarily if it is beneficial to your business.

Step 6: Should you rent an office or work from home?

Many startup businesses are run from home. There are benefits working from home.

May be, consider taking up an office when your business can take care of itself – start generating sales and have sufficient cash.

Now that you are ready to start your own business, may good luck and good fortune be yours way. If you require any help please do not hesitate to contact us.

Choose your accountants wisely

Choose your accountants wisely

Concise tips in choosing accountants wisely to work with you on your business.

Accountants’ pricing

It is important to obtain couple of quotes from different accounting firms to compare the prices so that you are aware of the market rate and avoid being overcharged. Usually, accountants firm charge their clients by the hour. They will provide you with a quote based on the nature of your business assignment.

Ask the accountants:

  • How many people would be involved in your company’s affairs?
  • How they work out their charging rate?
  • How often they will issue invoice to you? monthly or as and when they complete your assignment.
  • Do they give credit terms, say 30 days from invoice date?
  • Would they communicate with you if they foresee the work involved is going to exceed the original quote given? You do not want to be quoted a fee of £1200 then being given a final invoice of £2000 to pay.

Some accountants firm offer fixed fee accounts packages to limited company. If you are just starting up your business it is best to go for fixed fee accounting package as you know exactly how to pay your accountants.

Accountant’s response time

Ask the accountants what is their response time within the firm? for example, they would reply to clients in 24 hours is their practice norm.

Would they be anyone else that you could contact if you could not get hold of the person in charge of your assignments?

Accountants’ specialist areas in business

Find out the accountants’ core competency. For example, if you have question involving international tax affairs, would they be able to handle or how would they able to assist you to get the result?

The size of the accountants’ firm

Ideally small to medium sized accountants are suitable for small to medium sized businesses.

Large companies are best to go for the big accountancy firms like PWC, KPMG, Deloitte and Ernst & Young and many more.

Attitude of Accountant in charge of your company affairs

It is very important that you have a rapport with the accountant that you would be regularly dealing with. Whether you feel comfortable with the person or with the way he/she handles your assignment.

Let take an example, if you are an impulsive person and you like to get things done fast, you would not be compatible to work with an accountant that has an attitude of managing its clients affairs on strictly first in first out basis.

If you are a positive thinking person, you may find it frustrating to work with an overly prudent accountant who come across almost negatives.

We believe in when there is a will, there will be a way in achieving whatever we want in business and in life. In other words, we can make the impossible possible. Choose like with like is the way to forward.

Convert business assets into cash

Convert business assets into cash

Convert business assets into cash by reviewing your fixed assets register to find which business asset can give you cash.

Fixed assets register is a summary of all assets owned by your company. It should contain information such as the asset description, date of purchase, value of the assets and economic useful life of each asset.

It is a good practice to review and update your company’s fixed assets register regularly to identify surplus or idle assets and to evaluate the condition of your physical asset to its value to ensure it is approximately close to it’s market value recorded.

Convert business assets into cash

  • Sell the surplus fixed assets such as land and buildings, plant and machinery, motor vehicles that your business would no longer need.
  • Assets that could potentially be made surplus and then disposed of, for example by subcontracting out your printing process, your in house printers would become surplus. Do this if it is more cost effective and efficient for your business going forward.
  • You could take advantage of the sale and lease back to get extra cash for the equipment you owned.
  • Hire out underutilized of plant and machinery capacity.
  • Sub let vacant factory and rent out vacant office space.
  • Disposed of separable and sale-able investments such as shares, subsidiaries or any parts of the business like a branch if they no longer serve your core business.
  • Sell idle equipment lying around in the factory or unused office furniture. The chances of the idle business assets being re-used is very small especially if they are stored in the warehouse or a storage room because people often forgot about them.

Cash is king. It is the life blood of your business.

Business with new accountants

Business with new accountants

Business with your accountants is important.

New accountants would write to your existing or former accountants to enquire before they accept your appointment as new client.

You would be ask to provide contact details of your previous accountants for this purpose.

Accountants’ fees

Ask your new Accountants to provide you with a quote of the accountancy services you required for your business. Be clear with the scope of work for the quoted fee.

Some accountants offer fixed fee accounts packages for limited company and other may quote you rate per hour for your assignment.

If your accountants quoted you rate per hour, ask them the estimated time they would take complete your assignment so that you know roughly how much it would cost you.

Questions for Accountants

Some people like to send long list of questions to their accountants asking possibility of doing this and that business and what is the tax implication of each business model.

Your accountants would usually charge for this kind of assignment.

It is good to seek accountants advice on your business model. Be specific about your questions on your business model if possible. This would help your accountants to gather information quickly for your business model and you save money too.

Dedicated accountant service

Dedicated accountant service comes with a reasonable quality price tag, if you would like to have direct access to a specialist tax accountant for example.

Ask your new accountants for the fees quoted to you, whether there will be a dedicated accountant as your main contact point if you have any questions about your company affairs.

If various accountants within the firm would be involved in your assignments, ask what is the best way for you to communicate if you have questions about your company transactions.

Communication is the key.

Prevent fraud

Prevent fraud

Business regardless of its size is vulnerable to numerous types of fraud and all these have big financial impact on your business.

Fraud can occur when there is lack of control in place to prevent or deter it from happening. Fraud can be anything from cash misappropriation to falsification of accounting transactions including creating dummy customers for money laundering purposes.

Businesses owners are advised to take reasonable steps to prevent fraud. There are ways to protect your business against fraud include the following:

Screen Employees

Make all necessary background checks and follow up on references, especially for sensitive positions in your business such as Finance Director who will be primarily dealing with your company financial affairs.

Train Staff

Ensure your staff are adequately trained in your standard procedures, and know what to do if there are any deviations. Your staff should know who to report to when they noted or suspected fraud has occurred.

Implement Whistleblowing Procedures

Encourage, don’t punish, whistleblowers, but be aware of the possibility of staff vendettas. Care must be taken when dealing with whistleblowers.

Use The Courts When Necessary

If your company has been defrauded by an outsider you may seek a civil action first. You can obtain a court order which enables assets to be traced and frozen.

Negotiate

As an alternative to the courts, you may negotiate with the individuals involved; try asking for any fraudulently obtained money to be repaid.

Use Technology And Computers

There are various IT technological options for minimizing fraud, for instance ability to recover deleted information from PCs, use of PIN numbers, and have layers of authorization access using passwords for different grade of employees within the company.

Stay Alert

Be aware of the possibility of fraud at all times and especially if things are not as normal as they should be, for instance suppliers’ bills on the increase or slow collection of debts or unduly high stock levels and so on.

Two Signatories For Cheque

It would be wise to always have two signatories for signing a cheque for certain amount of pay out, and for authorizing payments via online bank accounts. This can be payment more than £20,000 require two signatories or approval of two finance managers or director.

Cash handling

Cash handling

Cash handling procedure in place for staff for efficient management, better controls of your business cash and avoid dispute as well as to prevent fraud.

It is good idea your business to draw up internal control procedures for your finance staff who handle your business cash and monies matters in office.

The cash handling procedures shall consider cover the following:

Bank Deposits

When paying a cheque or cash into a bank account, a deposit or paying in slip must be completed. Deposits can be made in person, by mail, or at automated teller machine (ATM). Cash should not be made by mail.

Receipts From Customers

Cash book, individual customer’s ledgers and trade debtors control accounts must be updated to keep track of your customers’ outstanding balances.

Send reminders to follow up on outstanding sales invoices, record of methods of settlement from customers for invoices due. Cash or cheque or by bank transfer or combination of the three.

For high volume transactions business, it is advisable to maintain your accounting records using well known bookkeeping software like Clearbooks, Xero, Sage or Quickbooks as this will cut down administrative burden and accuracy can be maintained.

Issue cheque

The cheque must be signed by authorized signatory only and approval must be obtained for payment.

Ideally, the person authorizing the invoice for payment should not be the same person signing the cheques.

There are computer software packages available that write cheques and reconcile a bank amount automatically. Using computer software is the quickest and accurate way of writing cheques. The computer prints the cheques and records the payments for accounting purposes.

Accounting statements and bank reconciliations are then prepared from the information entered for the cheques payments. The use of computer-prepared cheques simplified the bookkeeping process.

Paying Bills Electronically

Bills can be paid electronically as an alternative to writing cheques.

There are different types of electronics payments:

  • Paying Online,
  • BACS payment,
  • Electronic Fund Transfer,
  • Standing Order,
  • Direct Debits,
  • Bank transfers,
  • Telegraphic transfer

These facilities have made global trading possible.

You may pay your staff directly by deposit salary to their bank accounts. You may electronically send PAYE and NIC to the HMRC.

Handling cash electronically enable monies available sooner between banks and there is less chance of fraud.

Security is extremely important when paying bills online. Passwords and identification numbers are a key to your company’s bank account. They should never be left where unauthorized staff or the public can see them.

However, it is still a best practice to perform accuracy check by reviewing the payments made electronically on regular basis.

Bank Accounts Reconciliation

Doing bank reconciliation frequently is compulsory to ensure there are sufficient funds in your bank accounts to clear payments made electronically such as direct debits, cheques issued, standing order and BACS payments.

The suppliers’ accounts must be updated frequently to ensure no overdue payments. Keep an eye on any discounts offered by the suppliers for early payments because this provides further savings for your business if there is sufficient cash in the bank and payment can be made.

Petty Cash

Petty cash is normally used for paying small items, ad-hoc expenses, stationery, taxi fares, and for reimbursement of staff expenses.

Companies usually set a maximum amount for withdrawals from the petty cash fund; the limit can be for expenses claimed up to £200.

Petty cash expenses and receipts must be retained and ensure the person claiming the petty cash sign the petty cash voucher.

An effective cash handling procedure gives confidence to your Auditor that your accounting system is reliable and your company accounts give a true and fair view.

Pre-trading expenses

Pre-trading expenses

Pre- trading expenses and costs incurred wholly and exclusively for your business before you start trading can be offset against your company’s sales or income in the first year of business. This would reduce your income tax bill or your corporation tax bill that why you claim your pre-trading expenses.

You must proof that your pre-trading expenses were incurred within seven years from your first day of business and it would have been deductible as a business expense if it has been incurred after your business starts trading. You must keep the receipts and invoices of your pre-trading expenses in order to claim your claim.

Examples of expenses and costs can be incurred prior to commencement of business include:

  • Advertising costs,
  • Wages and salaries,
  • Rent and rates,
  • Insurance for your business,
  • Bank charges and interests,
  • Lease rentals on plant and machinery,
  • Computers equipment,
  • Office furniture
  • Accountant’s fees.

Equipment and long term assets bought before commencement of your business, it would be introduced to your business at the current market value and would be treated as if it was purchased on the first day of business.

Work from home

Work from home

Work from home is the popular choice when starting out a new business. Working from home is incredibly convenient if you are running an internet business. Your home is the place you have already and all you need is to find some space to setup your office at home. There may be distractions, but there are lots of good reasons to work from home.

Save Paying Office Rent

The money you save by not renting an office can be invested instead in technology, marketing and other things that build your business.

Commuting

Travelling a few feet in the office each day can make a refreshing change after years of catching the early morning train, tube or driving to work. You can work long hours for shorter days.

Flexible Working Hours

If you are the creative type, or just like to work at odd times, working from home means you can go into the office whenever you want.

Childcare

Working from home makes childcare a lot easier. It is also easier to fit your work around school drop off and pick up time.

Coffee shops

Even those with an office frequently choose to meet clients in a mutually convenient coffee shop like Starbucks or Café nearby. Use coffee shops to meet people. Most cafes provide free wifi so you can take your laptop and work there in between meetings.

Domestics Crises

Life is littered with domestic crises. It can be useful to be at home working during the day, even if it is only to let the telephone engineer in to fix your BT phone box or your boiler.

Comfortable

You can create a work-like environment, you can dress down as far as you like if you have no meetings with customers on some days.

Interacting With People / Communication

You will undoubtedly have people who work with regularly or on a project basis. You can use live chat or conference calls such as Skype, Face Time or Video call to hold teleconferences.

Environment

If you like to listen to music no one will stop you. You can create your office environment the way you like.

Colds

You know when someone starts sneezing in an open plan office? Soon everyone is reaching for the tissues. Working from home can avoid all this.

Working from home gives you lots of freedom to do your own things but you must also have strong self motivation and self disciplined to build your business.

Business plan

Business plan

Business plan for your business is required when you seek funding for your business from the banks or other financial institutions or potential investors. Your potential lenders would be interested to learn more about your business model and the product and services you offer.

Even if you do not require funding for your business. It is a good to have one and use it as your continuing business reference guide.

A business plan is an overview of your business life cycle from the beginning to its foreseeable future. The plan should be short, simple, specific to the points and realistic with factual information.

Writing your business plan can help you to put things into perspective and allow you to prioritize your work according business operations needs and it also can be used as a yardstick to measure the progress of your business. Generally, a good business plan should cover the following aspects.

Vision

Capture in a sentence what is it that makes your business exciting and utterly irresistible to customers, suppliers and, most importantly, to you.

Background

Describe how you came to conclude that this is the right business to be in right now. What are the circumstances that are coinciding to create your opportunity?

Goals

What are the specific short, medium and long-term goals and how would you measure your success?

People

Are you starting up your business alone? Or with business partners? Or get new staff? Whoever they are you must know how are these people perfect for the job?

Products/services

What are you going to sell and what are the main benefits of your potential customers would prefer to buy from you then your competitors? Anyone else selling the same products and services?

Competition

Who is already out there and how will you be different? The differences are crucially important – without knowing them you will not succeed.

Marketing

How are you going to communicate the benefits you offer to those you seek as customers? How will you measure the response and improve marketing effectiveness?

Funding

How will you pay for your business expenses? Using your own savings or getting a bank loan and if there are investors what can they expect in return?

Risk

Show that you’ve assessed the risks to your success and have them covered.

Exit plan

Your business, like anything else, has a natural Lifespan. You need to plan for your exit before you start. Will you sell? Give it to your kids? What?

Last but not least, writing business plan provide you with clear direction of how your business is going to be one day.

Recover debts from your customers

Recover debts from your customers

Recover debts from your customers as quickly as possible is important. This is because in your business, your your main income is from yours customers, but the income will only materializes into cash when they actually pay up! Until the customer pays, you are financing their needs.

Credit check

Your business is better off to keep your bad debts and your level of accounts receivable (debtors) to a minimum by having a good credit control procedures in place. It is recommended that your business always check the creditworthiness of your customers, either through a banker’s reference or by using an independent credit rating agency such as Noddle or Experian.

Customers with bad credit rating should be on cash on delivery terms. Your business should also monitor the time taken by your customers to pay you. The longer your customers take to pay, the higher chance that their debt will turn bad.

Early payment discounts or pay by installments

Encourage customers to pay sooner by offering early payment discounts or payment by installments.

Take legal actions

Do not be afraid of taking legal action to recover debts from your customers. Often, the threat of legal action against a financially unsound customer will make them pay up quickly as they do not want their other creditors to be aware of their financial situation because this may lead them stop supplying goods and services on credit.

Use aged debtors report to monitor

Most bookkeeping and accounting software comes with aged debtors reporting. This report is a simple report summarizing the amounts owed by customers and how old the debts were. You can see at a glance which customers are taking ages to pay.

An example of aged debtors report

If you are still using excel spreadsheet for your bookkeeping, and your customers base has expended steadily, consider to invest in online bookkeeping software like Clearbooks or Xero.

You could create your own aged debtors report using excel spreadsheet if your customers base is manageable by you and regular updating the report would not be a hassle and not taking considerable of your time.

CustomersTotalCurrent2 mtholder
LoveU Ltd£50K£30K£20K
Missed Ltd£300£300
Total£50.3K£30K£20K£300

Based on the above example, it may be wise to put in effort to get LoveU Limited to pay up the £20,000 sooner by offering discounts and stop giving credit until the sum has been paid up. Similarly for Missed Ltd, the debt of £300 may need to be written off as bad debts if it is not recoverable.

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