Startup financial tips
Starting a business can be exciting, challenging and daunting all at once. If you have a great idea that you think could really fly, it’s important to set yourself up for success before you leave employment. That means ensuring you know your business plan from your balance sheet and being able to cover your basic living costs when the time comes to take the plunge. Here, we offer seven tips that will give you a good start from a financial perspective.
- Assess your current financial situation
The first task is to step back and take an objective look at your current finances. Assess your income and expenses – everything from salary, benefits and rental income to your mortgage or rent, utility bills and childcare costs. Be sure to review your employment benefits too and decide whether you can manage for a given time without a pension or your healthcare or insurance schemes.
Create a spreadsheet or download a budgeting app to track all this and decide whether you could make any efficiencies.
- Build up a buffer
Before you hand in your notice, build up three to six months’ worth of essential living costs. This ensures that if your business takes some time to generate income, the financial pressure won’t leave you unable to cover the basics. It will also give you some time to make sound decisions with a longer term benefit.
- Research business startup costs
Setting up a business can rarely be done for free. Calculate the cost of your first year, taking equipment, software, premises, marketing, insurance and legal costs into consideration. If you need training or qualifications to get off the ground, factor in the time and cost of obtaining these.
- Create a business plan
A business plan is critical not only to ensure you stay on track, but also for securing funding from investors. Create a comprehensive plan that includes cash flow forecasts, projected income and a break-even analysis. Alongside your startup cost calculations, this will inform how much investment you will need.
- Set up a business bank account
A simple yet very effective way of keeping your business costs separate from your personal ones (and improving clarity when it comes to tax returns) is to set up a business bank account. Most UK banks offer business current accounts, which often come with support services too.
- Determine a business structure
Your business structure will affect how you pay tax and how you are perceived by clients, among other things. There are pros and cons to each option, so chatting to an accountant about the best way to start is advisable. Remember your chosen structure isn’t set in stone – you can start as a sole trader and incorporate when you have achieved a certain amount of growth.
- Register with HMRC
When you have chosen a structure, you need to register with HMRC for Self Assessment. You may also have to register the business for Corporation Tax and VAT. Again, understanding your tax obligations is vital for success and an accountant can help you.
If you’re getting ready to launch a new enterprise, get in touch with a reputable accountant today to ensure your finances are in order.
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