Starting a new business is exciting, but often feels overwhelming. You’ve got an idea, you’ve thought about it long and hard and you’re ready to go for it.
We’ve spoken to many people who have started their own business. Indeed, we’ve been through the same process ourselves.
Every start-up is different, so there is no such thing as a comprehensive ‘to do’ list for all new businesses. However, here’s a summary of the more common issues you should consider.
Prepare a business plan
If you’re looking for bank funding or equity investment, you’ll need to prepare a detailed professional business plan, with comprehensive financial projections. Expert advice in preparing a formal plan, to support a debt/equity funding proposal, is highly recommended.
If you are funding your business yourself, then your business plan is initially for your benefit. A plan is a useful way of focussing your mind on your goals, key tasks, timescales etc. Write out a short simple plan covering:
- Your products/services. Be clear on what you are selling and your strengths.
- Identify your markets, customers and their needs. Whose/What problems are you solving? How do you sell your solution?
- Pricing. Do you know the market rate for your products/services? Do your prices mean you’ll generate profits?
- Place of business – where are you going to operate from (home or premises)? What plant and office equipment, vehicles and fixtures & fittings do you need?
- The business’ funding requirement over the first year (see below).
- Key tasks to get the business up and running, with a timetable.
Once done, don’t just file it and forget about it. Keep it handy. Use it to monitor actual progress against plan. Learn from actual v plan variances, and refine the plan/task list.
Take financing seriously
How do you plan to fund the business and your life? Prepare a detailed financial budget showing how much money you will need to get your business to a stage, where it generates sustainable and sufficient cash. This is a forecast, not an exact science. It should focus your mind on key funding issues.
Be conservative here – consider all costs, including cost of goods purchased, staff costs, premises, plant, office and IT equipment, software, marketing and any advertising, website costs, travel and entertainment, insurance, business rates and other taxes, accountancy and legal fees, and your living costs.
Consider the impact of worst-case scenarios over the first year – does your budget enable you to weather these difficulties? See the comments below on the importance of cash.
Develop a marketing plan
Without effective marketing, you don’t have a business; you have a costly past-time. So you must have a plan. However, be careful: distinguish between direct marketing of your products/services and branding.
For most start-ups, branding should be limited to some basic things which involve minimal cash investment. Yes you should consider a business logo, a good quality website, professional business stationery, email footers etc. Make sure all of these give out a consistent professional image. This base activity shouldn’t cost the earth. We certainly know of web designers, logo designers and business stationery suppliers who provide great quality at an affordable price. We are happy to share their details.
Most start-up businesses should avoid the expensive branding and marketing activity done by larger, established businesses. Instead, focus on the direct ways you can convince customers to buy your specific products/services. Some of the issues to consider:
- Ask yourself, what problems do my customers have? How do my products/services provide solutions to these problems?
- Every time a customer purchases from you, they are taking a risk. How do you minimise or eradicate that risk?
- What qualities would you like people to associate with you? Your premises, vehicles, and business attire, your website, promotional materials, business stationery, email footers and social media presence – do they all support these qualities, the image you want to give?
- How do you make it easier for customers to find your business (on and off-line) and buy from you? What social media (e.g. Facebook, Linked In) and traditional marketing activities will be best for you?
- Customers may have misconceptions about your sector/business. How do you overcome any scepticism, for example with authentic testimonials and guarantees?
- What do your competitors do or not do? Can you learn from their successes and failures?
- How are you going to use the following in your marketing: social media such as Linked In and Facebook; business networking groups; telesales; and traditional advertising such as leaflet drops?
The importance of cash
Selling at a profit is important, but ultimately you need to get paid. You must also manage your cash flow carefully. If you run out of cash, your business fails.
In terms of getting paid, there are various policies/disciplines you can develop in the early phase, to minimise the risk of overdue and bad debts as the business starts to sell. These include agreeing written terms of trade with customers, setting out when you will raise sales invoices and the credit terms you offer. If you can get customers to pay by direct debit, consider DD collection services like GoCardless. If not, implement effective credit control procedures.
You will also need to manage your cash payments to suppliers, staff and other 3rd parties (including HMRC). If you need to carry stock, keep a close eye on volumes and value – try to keep cash tied up in stock to a minimum.
We recommend that you get into the discipline of preparing cash flow forecasts, to understand your cash flow cycle. Do you have cash ‘pinch-points’ at certain times of the month/year? Compare actual cash flows to your forecast, to understand key variances. Investigate and learn from major variances. And, if needed, take any action to improve your cash position.
Choose a business name
Key issues to consider here are:
- Legal requirements on business names.
- Pick a name that gives your business the right image.
- Ensure your name is available by searching on-line.
- Do you need to check the Trade Marks Register?
- Do you need to legally protect your business name?
- Don’t spend cash on branded materials until you’ve decided on the final name.
- If not already done, buy the appropriate website domain name.
Decide on a business structure
You can trade as a sole trader or in partnership with other people; or you can operate through a limited company. Careful consideration should be given to the legal and tax consequences of each of these options – take professional advice on this matter. For more information on the trading as a sole trader or through a limited company, see our Insight on sole trader or limited company – key issues.
Prepare business stationery
There are legal rules which dictate that certain information should appear on business letterheads, email footers and your website.
Register with, and comply with the rules of, relevant statutory authorities
This includes HMRC (for tax), Companies House (if a limited company) and the Information Commissioner’s Office (data protection).
Money laundering
Be aware of money laundering legislation and how it may impact you.
If employing staff
Understand your responsibilities such as payroll and employment taxes, health and safety, minimum wage legislation, holiday entitlement and pay, statutory pay (e.g. SSP, SMP, SPP and SAP), workplace pensions and insurance.
Sector specific law/regulations
Are there any sector-specific rules you must comply with to operate your business? For example, regulation set by a supervisory trade body or a specific piece of legislation?
Insurance
Some of the types of insurance to consider are employer’s liability insurance (mandatory if you have employees), motor insurance, professional indemnity insurance, public liability, business interruption, bad debt, keyman and medical insurance.
Banking and accounting
Open a business bank account. This can take longer than you think, so do this as soon as possible. Compare the terms being offered by different banks, including charges applied after any initial free banking period.
Set up systems for preparing accounts and monitoring the financial performance of your business. The list of things to do here is long including implementation of accounting software, book-keeping, invoicing and credit control, paying suppliers, payroll, pensions, management accounts, year-end accounts, budgets and forecasts. Get some help on this early on if you need it.
Taxation
You must abide by all HMRC rules. Also ensure you operate as tax-efficiently as possible, to minimise tax liabilities. Seek professional advice, to avoid nasty surprises but also to take advantage of lawful tax planning opportunities.
IT, security and back-up processes
Decide what IT equipment and software you need.
Consider the advantages and disadvantages of desktop v Cloud hosted software.
IT security. Make sure you have appropriate virus protection software (regularly updated). Use passwords which are changed regularly and are not written down.
Ensure your use and storage of personal data complies with GDPR (data protection) requirements.
Have a system for backing up data. This can be simple syncing of key files to hard drives, or Cloud storage (e.g. OneDrive, Google Drive and Dropbox). Alternatively, it could also mean Cloud backup services such as Backblaze, Mozy and Carbonite.
Limited company issues
If you operate a business through a limited company and you are a director, you have legal duties as a director. And there are requirements to file certain returns/forms at the Registrar of Companies (Companies House).
The above is necessarily only a high-level review of some of the more common issues you should consider when starting to trade. As you can see, there’s a lot to get through. But don’t be intimidated; with support and commitment, it’s all do-able.
Every person, every business start-up is different. Whether you make contact with us or another accountant, we urge you to take advice early in the process – high quality input from a qualified Chartered Accountant will pay dividends in the long-term.
If you want to know more about starting a business, check out our Insights on when is the right time to start a business and the qualities needed to start a successful business.
We’d love to help. Please do get in touch for a no-obligation conversation – see our Contact Us page for how to reach us.
Information in this publication is only intended to provide a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Whyatt Accountancy accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material.