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The First Wealth Guide for Business Owners – Part 1 – Starting Up

Posted by Robert Schwarz, Financial Planner

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The impulse to start a business can spring from anywhere. You might have a burning conviction that your idea will be a sensational success and be desperate to share it with the world. You may be fed up with taking orders and prefer to be your own boss. You may want to build something that’s your own for the long term. Or you may be moving into retirement and looking to keep something going on the side.

Maybe the plan is to grow a family business and pass it on to the next generation. Perhaps you’ve got an eye on scaling up the business to sell it and retire on the proceeds… or start up another one.

There are a plenty of different motives for going it alone, and there are just as many benefits. Becoming your own boss can bring untold advantages to those with an urge to follow their ambitions. The potential for a better work-life balance, maybe more money, the freedom to act on your own ideas and instincts, or just a general sense of personal and professional satisfaction.

Of course, that’s not the only side of the entrepreneur’s story. If it was all upside, then everyone would be doing it. It comes with risks and sacrifices too. Potentially less financial security, fewer holidays, fewer automatic perks and benefits that as an employee for a company you’ll have taken for granted. It’s a risk-reward balance that needs to be weighed up very carefully in every instance.

Becoming a business owner can be infinitely rewarding, but only if you go about every aspect of it the right way – from day one to the day you sell up, retire or move on to the next challenge.

This three-part guide will tell you what you need to get right when you’re running a business, wherever you are in the company’s lifecycle. In this first part, we’ll be covering everything you need to know when you’re starting out, making sure that when you take that leap of faith you land on a firm footing.

Build a Business Plan

Every new business needs a realistic plan – one that can be as detailed as possible but always with the flexibility to be refined or adapted when it’s put to the test in the real world.

The plan will invariably be wrong from day one, as the business will naturally change and adjust, but sitting down and plotting out a short-, medium- and long-term view of where the business will go is nonetheless hugely valuable and insightful. It sets a direction of travel, flags up potential problems, and establishes milestones against which you can measure your success.

It’s similar to the process we go through for individuals in their personal financial planning, but applied to a business. There’s some valuable guidance and more information on putting together a business plan on this Government website.

Select your Start-Up Support Network

Gathering the right people around you to contribute to your plan (and to travel along the path with you as long as you need them) is crucial. These aren’t your staff – these people are what we call your Money Team (for more details on this, First Wealth Co-Founder, Robert Caplan, recently spoke about the importance of having your Money Team around you).

Firstly, this means your family and friends, the people who know you and your personality, your strengths and weaknesses. Then it’s about pulling in the professionals you’re going to need to get the venture off the ground and keep it aloft. These are a great financial planner, an accountant and a lawyer to make sure that everything is set up and working correctly from the beginning.

You also need your Money Team to be proactive. They should challenge you when they disagree with your plans, cover the gaps in your knowledge and experience and make suggestions when they can add value or spot opportunities (and problems) that you haven’t noticed. It’s vital that they collaborate and have a good working relationship with each other. This is your network – your safety net and your springboard – so you need it to be tight and fully-functioning.

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Decide on Structure and Ownership

On setting up, you have a choice to make on how you want to structure your business. Are you a sole trader, or a partnership? A limited liability partnership (LLP) or a limited company? These decisions will have a bearing on the ownership of the business itself. A sole trader will own their business outright, but a limited company will have shareholders.

The benefits and suitability of the options available will depend on your business’ unique situation. It’s important to work through the decision with your Money Team to decide which suits your needs best.

Follow these links for more information on the alternatives and a step-by-step guide on each: sole trader; partnership; limited liability partnership; limited company.

Find the Financing

It goes without saying that to launch a business you will need at least some initial funds behind the venture to get the ball rolling. Again, there are plenty of options available. You might have money of your own to invest, or be using a business loan from a lender.

There are government grants and loans available for certain sectors or a range of investment options to pursue, from a capital contribution from friends and family members to piquing the interest of Angel Investors.

All Things Admin

It’s not the most glamorous part of being an entrepreneur, but making sure your admin and accounting procedures are fit for purpose from day one is going to save you a lot of unnecessary work and stress later down the line.

This means things like selecting the right bank account for your business, which depends on what you’re looking for it to provide, the services you’re seeking and the fees you’re willing to pay.

If you are planning to take on staff you’ll need to register as an employer with HMRC, and set up PAYE and payroll for your employees. If your business’ taxable turnover is likely to be greater than £85,000 you’ll be required to register it for VAT. A limited company must register to pay Corporation Tax.

Choosing the right software to run your payroll, accounting and invoicing systems also happens at this stage. Explore all the options, have a clear idea of your needs, and speak to your Money Team for recommendations and guidance.

Any employees you take on will need to have contracts, so you it’s important that you’re aware of what’s legally required of the employer in this situation. Basic templates can be found online but this is where advice from your solicitor will also be vital.

Don’t forget your tax and accounting deadlines. You will now have a business tax year as well as your own personal tax year. The deadline for your tax return is 12 months after the end of the accounting period it covers. Corporation Tax, however, is payable nine months and one day after the end of your accounting period. VAT tax returns are usually due quarterly. PAYE income tax is payable every month.

On top of this, you will have separate deadlines for invoice and expenses payments as part and parcel of the day-to-day running of the business.

Paying Yourself

After all that admin, you deserve a reward. As the business owner, you’ll need to decide how you’re going to pay yourself. The choice will be dependent on your unique business and tax circumstances, but the aim is to extract your money from the business in the most tax-efficient way possible.

It can be more efficient to take out dividends than pay yourself with a salary which is liable for PAYE income tax. However, many business owners choose to also pay themselves a minimum salary and make National Insurance (NI) contributions to ensure they receive their full NI benefits in future. This is an area where your accountant will be able to direct you with guidance specific to your situation.

In Part 2 of First Wealth’s Guide for Business Owners we look at all the ongoing demands of a business once it’s up and running, including hiring staff, choosing insurance, cashflow planning and capital expenditure.

If you would like to talk through your personal and business financial planning requirements, please get in touch.

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This document is Marketing Material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested

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