Have you ever wanted to know how to set up a business? The thought of setting up your own company might seem daunting at first, however many people successfully do this everyday. The key is that once you have taken the decision to setup on your own, you make sure that you succeed. This article goes through the main steps on how to set up a business to run yourself.
At first you will have lots of different and exciting idea’s on what you want to do. You then need to work out how you intend to do them. It is essential that you detail all this down into a business plan. A business plan is a document which details what you intend to do and how you intend to achieve it.
A business plan is one of the most important things to do at the outset in setting up a business. This is certainly the case if money from a bank is to be borrowed to help get a business started. A bank will typically want to see what income you expect to generate and also what expenditure you intend making over the next 12 months.
Financial figures can be best presented in a spreadsheet. Detail the income and expenditure along the left hand side and each month of the next year along the top of the page. Use each month as a separate column. You may need to get the services of an accountant or business adviser to help you with this.
After choosing a name for your new business, now you need to decide on how to setup a business structure suitable for you.. There are three main business structure’s available to you:
- Sole Trader – this is the most common for people setting up on their own.
- Partnership – this structure can be used when several people (partners) intend to setup a business.
- Limited Company – This structure in theory provides limited liability to the Directors (owners) of the company. However more burdens and responsibilities exist with a limited company and its directors though external regulation such as the Companies Act. If you consider this structure is what you are looking for then it is best to enroll the services of an accountant with the setup and advise. More information on how to set up a business can also be found on GOV.UK
Other factors to consider on how to set up a business are:
- Open up a separate business bank account.
- Keep records of all income and expenditure related with your business.
- Manage cash flow on a daily basis. This will help to ensure that you plan expenditure so that you do not run out of money. See the later section on cash flow for more detail.
- Inform HMRC when you commence self employed work.
- Enroll the services of an accountant to help and advise you on issues such as: business setup structure, VAT, Tax, payroll – if you decide to employ people.
There is a saying in business that “cash is king”. This is very true and one of the most important considerations when setting up a business. A lot of business fail in their first year of trading only as a result of poor cash flow management. In simple terms cash flow management in controlling when and how you are going to pay for your expenditure. This may be the products that you are selling, overheads that you incur such as advertising, postage, travel heating etc.. You will also need to include the payment of any employees that you may have.
The income generated from the sales of products or services is what will pay for this expenditure.The money left is the profit. However remember that if you make a profit then you will likely need to pay some tax. The amount depends on the level of profits. It is best to get your accountant to calculate any tax payable.
Tips on generating as much income is to charge as much as people are willing to pay. To determine this then you need to do your own market research. Also see what your competitors are charging for the same or similar products/services.
An important cash flow lesson is getting paid for a product or service as early as possible. Ideally payment upfront is desirable. However when this is not possible then ensure you bill the buyer by invoice as soon as you can. The invoice should clearly detail the credit terms of when payment is due by. It is essential to keep a record of payments received. Also get into the habit of regularly chasing for payment with any customers paying late.
Incentives to encourage people to pay you on time, could include offering a small discount if paid early, or indicating that you will charge ‘late payment interest’ if your paid late.
Planning what expenditure will be incurred and when is very important. You may have costs that relate to the products that you are selling or materials that you buy to help provide a service or product. You will also have ongoing expenditure that relates to the running cost (overheads) such as telephone, heat and light, travel and advertising etc.
In general the opposite rule to applies to expenditure as it does with income, namely, the key here is to pay for your goods and overheads as late as possible. Keep a schedule of items due for payment so that they are not paid early. Also look for suppliers that offer you the best credit terms compared with other suppliers – provided that they are not more expensive.
Remember that you will also need money for yourself to live on and pay any wages of employees. Payment of you employees on time should always be a priority payment.
Once you have considered the above then you will be well on your way on how to set up a business of your own. If your looking for some more inspirational business ideas then take a look at our article on Direct selling .We wish you the best of luck.