Top tips for starting a business. Who do you need to notify about the new business? What legal status best suits your situation - sole trader or limited company? What about HMRC? Do you need to be registered for VAT? What insurances are required?
Five tips on starting your business
Adam Ewart, CEO and Founder of Send My Bag, shared his tips with ICAEW for how to get a new business off the ground.
1. Don’t spend money you don’t have
Rather than spending money you don’t have, aim to be profitable within the first year. If there isn't a clear route to sustainable profit, then your business is worthless. Aim to be profitable in the first year. Build a profitable business, while acting responsibly, and then integrate a positive business purpose later fi you want to.
2. Don’t raise money unless you have to
Try to prove the concept could work on a shoestring budget and that it could make money, instead of asking for an investor’s money to spend.
3. Be flexible so you can adapt your product to market and consumer changes
Don’t ever give yourself fully to any particular idea or product. While you should never give up on your overall vision for a business, it is important to be smart and objective. Listen to the market and its response to your business concept, seek external feedback on your ideas and implement the advice given. If the market rejects your business, take time to gather your thoughts, regroup and come back with something better.
4. Make use of networking opportunities
Go to events. You never know who you’ll meet and when you might need their support. Get to know people who can help you, but be mindful of balancing the time spent talking about your business with actually working on your business.
5. Don’t be afraid of exporting when the time is right
Don’t restrict yourself to your home market. Do your research and look to the world and what other opportunities await out there and seize them.
Business structure - tax, NIC, VAT and HMRC
Depending on how you have chosen to structure your business, you will need to notify one or more of the relevant agencies.
If you have chosen to be a sole trader, you must notify HM Revenue and Customs (HMRC) within three months of starting your business.
Businesses that reach the threshold for compulsory VAT registration must notify HMRC (this threshold is revised every tax year). However, it can be advantageous to register even if you are below the threshold. To register for VAT you must notify HMRC. Depending upon the nature of your business and whether you are operating from a business premises, there may be other organisations you should notify, such as your local authority.
If you create a limited company you must inform Companies House, who will then notify HMRC. HMRC will send you a form that must be completed and returned within three months of issue.
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Initial funding
Family and friends may well provide what is called the ‘seed funding’ or the initial sums of money to kick-start your business. Some people have the advantage of extended families and large networks of friends who are eager to contribute. But sometimes it can be difficult to ask those close to you for financial help, or they are not in a position to give it to you. Some people don’t like to mix business and friendship.
A lot of people also begin by ‘bootstrapping’ – starting with a little capital and relying on money other than outside investments. An individual is said to be bootstrapping when they attempt to found and build a company from personal finances or the operating revenues of the new company.
Business finance and grants
A selection of guides, links, books and articles to find more information on sources of business finance.
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Accelerators
A business accelerator is generally run by established companies or businesses, using their own experience to provide start-ups with guidance and support for faster growth. Accelerators are usually for-profit ventures. They sometimes have funds to invest and will claim to be able to introduce the business to a range of investors – but too often the benefit to each party of these relationships is poorly defined and the businesses themselves are at risk of being too early stage. Most of the funders are watching the market and will only pick a limited number of companies to invest in.
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Angels
‘Angels’ are, for the most part, successful businesspeople who have sold companies and are using the funds to create a portfolio. It can be difficult to find a match on your own, so a better option is to use a dedicated network such as the UK Business Angel Association (ukbaa.org.uk), which does a good job of linking entrepreneurs with angel investors.
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Incubators
The offering here is to provide coaching and assistance to help you raise funds. These days, incubators are usually run by not-for-profits or academic institutions.
I ran KPMG’s Incubation Services in the dot.com boom in the late 1990s and early 2000s. Our incubator didn’t provide any start-up capital and that is still the case. We didn’t go in for co-location, but nowadays the model is to house many companies in one place so that entrepreneurs and their teams can meet other start-ups and share information and knowledge on how to solve the challenges of creating and running a new business. However, unless you can get to lift-off within a 12-month period, you’re likely to be turfed out.
Sometimes start-up camps and suchlike promise the Earth but deliver little. Sometimes the excitement of participating can overwhelm even the most phlegmatic of characters. That said, they can be great: just choose wisely. Look at the exit clauses and research what has happened to previous members. Seek some out and hear their experiences first hand.
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Unicorns
The term ‘unicorn’ has become commonplace for businesses that achieve a valuation of £1bn in a short time frame. The trend is for companies to get big quickly, but sometimes their systems and management processes aren’t robust enough to survive choppy waters or adapt to a subsequent slowdown in business.
Other options to consider include crowdfunding platforms and service firms. However, think about what you are trying to create and the type of shareholders you wish to have. There are of course enterprise and seed enterprise investment schemes (EIS and SEIS) and venture capital trust (VCT) funds, which have tax incentives, but these tend not to be for raw start-ups these days. They require a certain level of revenue and profit before investors are prepared even to look at the business.
Essential accounting records
It's important to maintain accounting records that comply with the occasionally complex regulations that apply to even the most straightforward business activities.
Every business registered for VAT is required to maintain financial records that comply with the guidelines provided by HMRC. Similarly, it is a requirement of the Companies Act that every company should keep proper accounting records of money received and paid, of all sales and purchases, and of assets and liabilities.
HMRC requires every business that employs staff to keep proper records for Pay As You Earn (PAYE) and for the calculation of tax liabilities. In some types of business, additional records have to be kept to satisfy government requirements.
If your records are inadequate in any of these areas, you may be storing up problems for the future.
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Legal issues
All businesses have to submit accounts to the tax authorities. Limited companies and limited liability partnerships also have to file annual accounts with the Registrar of Companies. These follow specific guidelines, so the assistance of an ICAEW Chartered Accountant will help you to navigate their complexities. VAT too, is an area in which expert advice and ongoing support will enable you to comply with the law while minimising stress.
If you employ staff, the payroll records must comply with HMRC regulations relating to Pay As You Earn (PAYE) and National Insurance Contributions (NIC). You are also required to meet a variety of Employment Law requirements such as the National Minimum Wage, Equal Pay, Holiday, Maternity Leave and Sickness Absence, as well as Redundancy. You must also comply with the requirements of the Data Protection Act (DPA).
Companies with a turnover of more than £6.5m are required by law to undertake an annual audit, carried out by a registered auditor. However, even when it is not a legal requirement, many businesses opt either for an annual audit or an assurance report because of the transparency and integrity demonstrated by an independent review of this kind.
Where legal matters are concerned, peace of mind is a priceless commodity. An ICAEW Chartered Accountant will know which records you are required to keep, help you to keep them properly, and ensure that they are filed with the relevant authorities at the right time.
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Insurance
Whatever your field of business, insurance is essential, and the following insurances are compulsory:
- Employers’ liability compulsory insurance.
- Motor insurance – if your business uses vehicles on the road or other public places.
- Professional indemnity insurance for businesses in professions such as law and accountancy.
Other types of insurance commonly taken out by businesses include:
- All-risks buildings and contents insurance.
- Equipment insurance.
- Business interruption or business continuity insurance.
- Goods in transit cover.
- Credit insurance.
- Legal expenses insurance.
- Money policies covering cash, cheques and stamps.
- Travel insurance, if you or your employees travel abroad on business.
The urge to make cutbacks in ‘non-essential’ costs can place the value of insurance under the microscope. Whether or not you use a broker, it makes sense to consult an ICAEW Chartered Accountant with the knowledge to identify the ‘core cover’ you will need and to place your insurance costs in perspective.
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