Starting
Up In Business
It
is the ambition of many people to run their own business.
Some may have been made redundant and find themselves with
free time and financial resources. Others make the decision
to start up in business to be more independent and obtain
the full financial reward for their efforts.
Whatever the reason, a number of dangers exist. Probably the
greatest concern is the possibility of business failure.
Read on for guidance on some of the factors which need to
be considered before trading begins.
This factsheet cannot cater for every possibility and any
decisions should be supported by professional advice.
Initial
Considerations
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In
order to make your business a success there are a number
of key factors which should be considered:
- commitment
- starting a business is demanding. Determination
and enthusiasm are essential
- skills
- you will need managerial, financial, technical and
marketing skills. If you do not have these skills
personally, they can be found in a partner or employee,
or acquired through training
- your
product or service should have a proven or tested
market, but must not conflict with the patent or rights
of an existing business.
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In
addition to these general considerations there are a number
of more specific matters.
The business plan
The business plan is the key to success. If you need finance,
no bank manager will lend money without a sensible plan.
Your plan should provide a thorough examination of the way
in which the business will commence and develop. It should
describe the business, product or service, market, mode of
operation, capital requirements and projected financial results.
Business structure
There are three common types of business structure:
- Sole
trader
This is the simplest form of business since it can be established
without legal formality. However, the business of a sole
trader is not distinguished from the proprietor's personal
affairs.
- Partnership
A partnership is similar in nature to a sole trader but
because more people are involved it is advisable to draw
up a written agreement and for all partners to be aware
of the terms of the partnership. Again the business and
personal affairs of the partners are not legally separate.
A more recent development has been the possibility of using
what is known as a Limited Liability Partnership (LLP).
- Company
The business affairs are separate from the personal affairs
of the owners, but there are legal regulations to comply
with.
The
appropriate structure will depend on a number of factors,
including consideration of taxation implications, the legal
entity, ownership and liability.
Business stationery
There are minimum requirements for the contents of business
stationery which will depend on the type of business structure.
Books and records
All businesses need to keep records. They can be maintained
by hand or may be computerised but should contain details
of payments, receipts, credit purchases and sales, assets
and liabilities. If you are considering purchasing a computer
to maintain your records, obtain professional advice.
Accounts
The books and records are used to produce the accounts. If
the records are well kept it will be easier to put together
the accounts. Accounts must be prepared for the Revenue and
if a company is formed there are strict legal requirements
as to their format.
A company and a LLP may need to have an audit and will need
to make the accounts public by filing them at Companies House
within a strict time limit.
Taxation
When starting in business, taxation aspects must be considered.
- Taxation
on profits
The type and rate of taxation will depend on the form of
business structure. However, the taxable profit will normally
differ from the profit shown in the accounts due to certain
expenses which are not allowed for tax purposes and the
timing of some tax allowances.
- National
insurance (NI)
The rates of NI contributions are generally lower for a
sole trader or partnership than for a director of a company
but the entitlements can also differ. But in a company,
it may be possible to avoid NI by paying dividends rather
than salary.
- Value
added tax (VAT)
Correctly accounting for VAT is an essential part of any
business and neglect may result in a significant loss.
When starting a business you should consider the need to
register for VAT. If the value of your taxable sales or
services exceeds the registration limit you will be obliged
to register.
Expect a visit from Customs & Excise within eighteen
months of registration. This inspection of your records
ensures VAT is being properly accounted for.
Employing
others
For the business to get off the ground or to enable expansion,
it may be necessary to employ staff.
It is the employer's responsibility to deduct income tax and
national insurance, as well as paying over tax credits to
employees and accounting for student loan deductions. The
balance must then be paid over to the Revenue. Payroll records
should be carefully maintained.
You will also need to be familiar with employment law.
Premises
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There
are many pitfalls to be avoided in choosing a property.
Consideration should be given to the following:
- suitability
for the purpose
- compliance
with legal regulations
- local
by-laws
- physical
restrictions such as access.
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Insurance
Comprehensive insurance for business motor vehicles and employer's
liability insurance are a legal requirement. Other types of
insurance such as public liability, consequential loss, business
assets, Keyman and bad debts should be considered.
Pensions
Putting money into a pension scheme can be a very attractive
way of saving for retirement because of the favourable tax
rules. Many companies have to provide access for their employees
to a stakeholder pension.
How
We Can Help
Whilst
some generalisation can be made about starting up a business,
it is always necessary to tailor the strategy to fit your
situation. Any plan must take account of your circumstances
and aspirations.
Whilst business success can never be guaranteed, professional
advice can help to avoid some of the problems which befall
new businesses.
We would welcome the opportunity to assist you in formulating
a strategy suitable for your own requirements. We can also
provide key services such as bookkeeping, management accounts,
VAT return and payroll preparation at an early stage.
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of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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C o m p l e t
e 
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to carry on audit work for a range of investment business
activities by the Institute of Chartered Accountants in England
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