At the beginning a new venture, you’ve probably already spent copious hours working out how you’re going to make money – but have you considered how you’re going to manage it?

Making sure your books are balanced certainly won’t bring you as much joy as your first deal, but it’s essential for keeping your start up running smoothly – and ideally, thriving!

In the following article, we’ll be highlighting the elements of accountancy that you should consider gospel when starting a new business.

The start-up costs

Before you so much as commission your logo design, you need to be thinking about the initial costs you’ll accumulate before your business is up and running. It is vital that you have a clear picture of your start-up costs from the offset. Unfortunately, there are lots of people out there with shattered dreams having spent valuable time, and what funding they had, trying to get businesses off the ground without understanding the costs involved. Don’t be one of them!

Here is a basic checklist of the costs your start up might incur.

One Time Start Up Expenses

• Building construction
• Decorating
• Fixtures and equipment – desks, chairs, computers, printers, cash register etc.
• Deposits – utilities etc.
• Insurance – premises, contents, public liability insurance etc.
• Professional fees
• Rent
• Lease payments- if applicable
• Licenses and permits – do you require a license to trade?
• Services – accounting, cleaning services etc.
• Supplies – office (stationary etc.), cleaning (cleaning products, toilet roll) etc.
• Design – logo, website, stationary etc.
• Advertising – new business promotion
• Signs – signage for shop fronts, or business premises
• Starting inventory – stock and / or raw materials need to create goods
• Cash – amount needed for the cash register if applicable
• Miscellaneous – other, these will differ depending on your industry but could include travel, visas, web domains and consultancy
• Unanticipated expenses – contingency reserves

Monthly Business Costs

• Marketing
• Bank service fees
• Credit card charges
• Delivery fees
• Insurance – excluding one off payments
• Interest
• Inventory – unless sales will generate enough cash for purchasing inventory
• Lease payments – excluding one off payments
• Loan payments
• Office expenses
• Payroll other than owner
• Payroll taxes
• Professional fees
• Rent – excluding one off payments
• Repairs and maintenance
• Sales tax
• Supplies
• Telephone
• Utilities
• Your salary – if applicable for first three months
• Other

Not all businesses will incur the same type of costs. For example, a services company may not need inventory costs if no goods are sold. Other businesses will have specialist expenses not detailed above, add these to “other”.

The above lists will provide you with an excellent starting point to get an estimate of how much capital you need to start up your business, and for the first few months of trading.

Your figures, when combined with business forecasts (sales, profit and loss and cashflow) will enable you to see whether your start up idea has potential, and see where you may need additional funding in the short or long term.

You can use our insightful Start-Up Calculator to get a better picture of what costs you’ll have in store and make use of our Business Planning services to get your strategy in place.

If you need to look into funding options, we can put you in touch with a broker, or you can contact the Start-up Loan Company

Tax & National Insurance for Start Ups

You’ve gone through all the expenses and monthly liabilities for your start-up that need to be taken into consideration, and you’re confident that you’ve got the funds to get started on your journey. Next thing you need to tackle, the dreaded tax man. Your experience here will depend on the business structure you decide.

Limited Company Tax and National Insurance

Why a Limited Company?

Limited companies tend to be the preferred option for startups, as they allow you to keep your business finances separate from your personal earnings.

For those individuals who want a more simplistic method of running their business, self-employment as a sole trader is the alternative. However, there are key advantages to creating a limited company, not least that you are likely to pay less tax than a sole trader.

Limited companies pay Corporate Tax on their profits. Currently small businesses (profits under £300,000) pay the ‘small profits rate’ at 20% and larger businesses the ‘main rate’, which is 19% for most businesses.

If you are the director or shareholder of your limited company, you can choose to pay yourself a salary, pay yourself in dividends or a combination of both. Dividends are taxed separately and are not subject to National Insurance Contributions (NIC). Therefore, this can reduce your personal tax liability and overall save you and your company money; compared to the sole trader route.

Setting up Your Limited Company

If you decide a limited company is the best choice for you, the process is fairly easy and pain free!

You can do this yourself or get an accountant to do it for you.

1. Register your company with Companies House: once registered you’ll receive a ‘Certificate of Incorporation’, confirming the company legally exists, the company number and date of formation.
2. Inform HMRC of your new company: you will then receive your Unique Tax Payer Reference.
3. Set up your company for corporation tax: using your Unique Tax Payer Reference you must provide HMRC with specific information about your business within 3 months of starting up your company.

Please note that this is the basic procedure you need to go through, however there are various considerations when forming a limited company; directors, shareholders, company secretary etc. If you would like some advice on this, get in touch with our team.

Your Tax Responsibilities

Having set up your limited company, you have the following tax responsibilities:

• To put together annual statutory accounts.
• To send Companies House an annual return.
• To send HMRC an annual Company Tax Return.
• To register for VAT if your company expects to take over £81,000 p/a.
• To pay your tax!

As a director of a limited company, you must also file your own self-assessment tax return for the salary and any dividends you draw: and pay tax and NIC through the PAYE system.

Legally, you do not have to employ an accountant to do this, but it helps! There are penalties and fines for late and incorrect filings, and remember you are legally responsible for your company’s records, accounts and performance. If you would rather have peace of mind and concentrate your energies on your core business, delegating these onerous tasks to an expert is a good idea. For peace of mind and efficient handling of your tax obligations, considering the services of a self-assessment accountant is a wise choice. They can navigate the complexities of filing self-assessment tax returns, ensuring accuracy and timeliness while allowing you to focus on your core business activities.

Self Employed / Sole Trader Tax and National Insurance

If you are self-employed, tax due must be paid by 31st January following the end of the tax year. For example, for the tax year that ended 5th April 2020, all tax and national insurance due would need to be paid by 31st January 2021.

As a sole trader, your tax will be self-assessed, and you’ll need to take the following into consideration when calculating how much you need to pay:

• Tax Free Income: Within the UK, you currently have £12,500 of tax except income. Make sure to take this into consideration when working out what you need to pay.
• Same Rates: Sole traders pay the same tax rates as employees
• Additional Income: Any income you receive as an addition to the business profits will need to be taxed separately.
• National Insurance: There are different rules for both tax and national insurance for sole traders, it would be best to speak to a professional as the discrepancies can be difficult to distinguish.

The following table breaks down how much tax you will need to pay based on your income:

Tax Band	Taxable Income	Tax Rate
Basic Rate	£0 to £34,500	20%
Higher Rate	£34,501 to £150,000	40%
Additional Rate	Over £150,000	45%

Start Up Legal Documents

Legal documentation is an essential element of your business’ foundation, alongside a professional accountant and comprehensive insurance.

What legal documents are standard for a business? Which of them do you need and how do they help you?

Core Business Documents

The first set of business documents are the ones that deal with the business as an entity, forming the central core to the business.

Shareholders Agreement or Partnership Agreement

If you are building a business with someone else, it is imperative that you have a legal framework in place that dictates the essence of how your business is to be run.

The Shareholders Agreement (for limited companies) or Partnership Agreement (for partnerships) is the main document that sets out the key tenets of the business to ensure that everyone involved in the decision-making processes has a full understanding of how the business works.

It is with this agreement that you set out the terms by which you will work together, the responsibilities of each shareholder/partner, how decisions will be made, and how both profits and liabilities are shared.

Privacy Policy for Website

Almost every business has a website, and with that comes a set of regulations to ensure that you deal in a responsible way with visitor data. Under GDPR regulations, every website requires a privacy policy that clearly sets out what data you collect from website visitors, how that data is stored, how it is used, and what systems are in place to protect it.

Website Terms of Use

The ‘terms of use’ is an agreement that is mainly used for users that directly interact with the site, though log ins or financial transactions.

The Website Terms of Use defines the legal relationship between your business as the website operator, and the end users of your website. Through an acceptance box, users acknowledge that they agree to abide by these terms, providing you with the necessary legal backing should there be any problems in the future.

Contracts

This second set of agreements covers interactions between the business and those who work for it, including employees, contractors and any third-party businesses who provide services.

Employment Contract

When expanding your business to include a team of employees, the employment contract ensures that you and your employee are both in full understanding of the terms of the employment relationship. It is a two-way document, detailing what is expected of the employee from the business, and also outlines the benefits to the employee as agreed by the business.

It should cover:

• A clear job title and description;
• Details of pay;
• Times of work;
• A full outline of any probationary period;
• Clear structure of holiday entitlement and pay;
• Business sickness policy and sick pay structure;
• Additional employee benefits (such as company car, work laptop etc.);
• Pension information;
• Business structure rules (for example, uniform regulations etc.);
• Termination policy.

Non-Disclosure Agreement (‘NDA’)

Also called a Confidentiality Agreement, an NDA protects the business and its intellectual ideas throughout its lifetime; anyone who has signed an NDA is legally bound not to disclose your confidential information to anyone. It is often advisable to consider an NDA during the very early days of the business to keep any unique concepts quiet during the formation of the business, but it is also a key document when working with any new people to make sure project specifics are kept private.

Non-Compete Agreements (‘NCA’)

A NCA sets out terms by which you can protect your investment in staff, by preventing them from leaving your business and immediately working for a business in competition or setting up a rival business.

It is usual to limit the terms of an NCA, such that it is for a set period (six months after leaving employment, for example) or made dependent on location (such as preventing someone from setting up a competing business in the same city).

Agreements with Clients and Customers

Ensuring that you are on the same footing as your clients is essential if you wish to maintain long-term professional relationships. Without any sort of contract between you and your customers, it is easy to have confusion, leading to one of the parties becoming unhappy with the situation. This can lead to the loss of important clients; or worse, expensive legal situations.

Memorandum of Understanding

Also referred to as an MoU, a memorandum of understanding is an initial document that outlines the basic structure of your business. An MoU is not a legally binding contract, but is a well-respected stepping stone in the process prior to a full contract that provides a strong degree of commitment from all parties and ensures that everyone involved is fully aware of their responsibilities.

Consultant Contract

Many companies work as consultants to others, from freelancers providing a service, to established businesses with multiple specialists. A consultant contract is a formalised document that details every aspect of the client-consultant relationship including (but not limited to):

• The work involved – a clear summary of the project and what the consultant is delivering to the client;
• Consultant services – what the consultant does and does not provide;
• The timeframe – including delivery deadlines and projected end dates;
• Consultant requirements – when there is onus on the client to provide documentation or other work to the consultant, this should be clearly outlined;
• The relationship – with multiple ways of working together, it is important to set out if the consultant is separate business entity or is to be considered a business employee for the project duration, with holiday entitlement and other rights;
• Payment structure – is the cost billed hourly or is there an overall charge for the project? If payment is to be made in stages or there are expenses to cover;
• Intellectual property ownership – who owns the work during the project timeline? Is it passed in full, from consultant to client upon completion?
• Rights for usage and resale – understanding how the work delivered is to be used, and if it can be reused in future and under what terms, must all be defined;
• Early termination – if the project is terminated early for any reason, what agreement is in place to protect either party?

With a formal consultant contract in place, work can progress smoothly, and any disputes easily handled.

Invoicing

An invoice is another legal document that your business will produce to request payment from your customers. With many accounting packages undertaking the task of producing invoices, this is a simple and near-effortless process, but it is important to focus on it during the early days of your business formation.

In addition to invoicing, it is worth considering additional payment-related documentation, such as purchase orders to have paperwork that confirms an order, and payment reminder letters pre-drafted to avoid difficulties later on with late-paying customers.

Being Money Conscious

When your business starts to bring in some revenue, it can be easy to get swept up in the success – which has been the downfall of many start-ups!

Before you put down a deposit for that Aston Martin, you need to make sure your business is financially sound, using the following tips as a guide:

• Build reserves in the company of three to six months of cashflow (i.e., your average total monthly expenses multiplied by three to six), so if something happens, you have sufficient funds to pay the bills as they fall due. You won’t necessarily have this to begin with, but it’s something to aim for.
• Put 20% of your turnover aside each month, preferably into a separate business account, so you can pay your tax as it falls due.
• If you are VAT registered; take any VAT you collect and put it into a separate business account.
• In addition to relevant business insurance, you might also want to consider critical illness and or income protection insurance to protect you and your family further.
• Don’t spend any money that you don’t need to. You need to ask yourself; do I really need it? You want to prove the business concept as cheaply as possible in order to understand if you should accelerate your business growth and invest in its future.

Getting an Experienced Business Advisor to help your start up business

If this is your first time starting and running your own business, there are a lot of traps that you’ll need to avoid. Putting a strong foundation in place can make the difference between survival and going out of business.

By working with a business advisor or professional accountancy firm from the start, they will be able to guide you through this uncertain terrain and ensure that as your business grows, you’re protected both financially and legally.

The main value of having a third-party professional to hand, is the years of industry experience they have to offer. The amount of this advice you choose utilise is dependent on your needs; whether you’re looking for occasional guidance on day-to-day accountancy enquires, or you want a financial mind present during strategic business meetings, a good accountancy firm will be able to offer that versatility in their service.

Most importantly, by handing over the reins of responsibility when it comes to your book-keeping and business finance management, you can focus on building your empire – knowing that your money is being managed expertly.

At Black and White Accounting, we don’t just help with ensuring you meet your accounting and tax obligations, we are a business partner you can talk to and bounce ideas off while your business grows.

If you’re starting out in business and feel you need a financial partner who does more than just your book keeping, contact Black and White Accounting or ring 0800 140 4644.