Key considerations when starting a new business

Business start-ups are on the rise. According to the national enterprise campaign, StartUp Britain, an unprecedented number of new businesses were launched last year, at a record pace of 80 an hour.

Figures published by StartUp Britain revealed 342,927 new businesses registered with Companies House between January and June, compared with 608,110 for the whole of 2015.

Interestingly, Bromsgrove was responsible for the majority of start-ups outside of London, where 29 people for every 1,000 residents branched out on their own between January and June.

Whether you’re starting a new business because you’ve been made redundant or the idea of being your own boss has always appealed to you, it’s important you don’t rush into anything. Make sure you do your research and take the time to consider key factors, such as these:

1. Business structure

Yes, it’s an obvious starting point, but it’s a really crucial starting point that will determine the type of business you run. Generally speaking, there are three common types of business structures:

  • Sole trader – sole traders are the sole owner of their business. They’re entitled to keep all profits after tax has been paid, but are liable for all losses.
  • Partnership – partnerships are similar in nature to sole traders, but because they involve more than just one person, it’s advisable for written agreements to be put in place and for all partners to be made fully aware of the terms of the partnership.
  • Partnerships can also exist as Limited Liability Partnerships (LLP) in which some or all partners have limited liabilities. For instance, one partner is not responsible for another partner’s misconduct or negligence.
  • Company – the owner(s) have limited liability. They keep their business affairs totally separate from their personal affairs and have to comply with legal regulations.

2. Business plan

Business plans vary from organisation-to-organisation. Ideally, they should thoroughly describe your business and cover key areas, such as your objectives, strategies, sales, marketing and financial forecasts.

The most effective plans help business owners to not just clarify their business idea and spot potential problems on the horizon but help them understand and plan precisely how they intend to generate money and make their business sustainable.

You can speak to us for help and advice on putting a business plan together.

3. Record-keeping

Regardless of whether you’re a sole trader, partnership or company, it’s essential that you keep an up-to-date record of your business activity.

It’s entirely up to you how you choose to keep your records. You may decide to keep hard copies of all of your business affairs or you may prefer to do everything electronically, including logging your expenses. The main thing is, that come year-end, you have a clear audit trail of all of your business activities for the previous 12 months.

If your records are organised and kept all up-to-date, then it will be much easier to put your year-end accounts together for HMRC. In addition to compiling their books, companies and LLPs need to make their accounts publicly available on Companies House within certain time frames. They may also be audited by HMRC at any time too.

4. Taxation

Another key area that needs to be considered when starting a new business, is taxation, which can be broken down into the following three elements:

Tax on profits

The type of tax that’s applied and the amount that’s taxed will be dictated by the type of business being operated. Taxable profits are usually based on the profits shown in your business accounts after they’ve been adjusted to comply with the tax rules.

National Insurance (NI)

Contributions can be paid at different rates for sole traders and partnerships compared to company directors on a salary. The entitlements can also differ. For instance, within a company, it may be possible to avoid NI by paying dividends rather than salary. Your accountant will be able to advise you on the options to take, based on your company set-up.

Value Added Tax (VAT)

Not all businesses are VAT registered. In fact, knowing whether or not to register for VAT is a question that’s often posed by many business owners, particularly when they’re first starting out.

If your turnover (total sales) in the previous 12 months exceeds the compulsory registration threshold (currently £85,000), then yes – you must register. Failure to do so can result in you being fined by HMRC.

If you haven’t exceeded the threshold for compulsory registration, you can still register voluntarily if it makes sense for you to do so. Again, your accountant should be able to advise you on the best course of action based upon your individual circumstances.

Starting a new business is undoubtedly an exciting venture. However, it is important that business owners’ visions don’t get clouded by excitement and that they do focus on factors, such as those listed above, that will help ensure they have the right foundations in place.

Are you planning to start a new business and feel you could benefit from some expert guidance and advice? Contact our team of specialists on 01905 777600 or hello@ormerodrutter.co.uk.

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