The thought of setting up your own company might seem daunting at first, however many people successfully do this each and everyday. The key is that once you have taken the decision to setup on your own, is that you ensure that you make sure you succeed.
At first you will have lots of different and exciting idea’s on what you want to do and how you intend to do them. It is essential that you detail all this down into a business plan. A business plan is a formal document that details exactly 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 especially as one will certainly be required if you need to borrow money from a bank to help get the 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.
The financials should ideally be presented in spreadsheet format with the income and expenditure detail along the left hand side and each month of the next year along the top of the page, using 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 which business structure you want to set up. 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 if you intend to go into business with one or more other persons.
- Limited Company – This structure in theory provides limited liability to the Directors (owners) of the company, however there exist more burdens and responsibilities placed upon a limited company and its directors though external regulation such as the Companies Act that must be adhered to. If you consider that this structure may be what you are looking for then it is best to enroll the services of an accountant with the setup and advise.
Other factors to consider when setting up your own business.
- 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 in such a way that you do not run out of money. See the later section on cash flow for more detail.
- Inform HMRC when you have commenced 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 running your 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 – be it the products that you maybe selling, overheads that you incur such as advertising, postage, travel heating etc.. and also the payment of any employees that you may have.
The income that you generate from your sales of products or services of you business is what will pay for this expenditure. What ever money is then left over is your hard earned profits.
Tips on generating as much income as possible is to charge as much as you think people are willing to pay. To determine this then you need to do your own market research and see what your competitors are charging for the same or similar products/services.
One of the most important lessons regarding cash flow is to get paid for your product or services at the earliest possible moment. Ideally you would be paid upfront, 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 you expect to be paid. It is essential that you then make a note of when you are paid or else get into the habit of regularly chasing for payment on any persons 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.
It is important to plan what expenditure you are going to incur and when it will be incurred. 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. This will involve keeping a track of when items are 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.