What do I need for a start-up business?
A financial checklist
Venturing out and starting your own business can be a dream come true, and being aware of what you can do to help your business thrive is an essential part of being an entrepreneur. According to government statistics, around 127,000 new small to medium businesses were registered in the UK last year, employing over 14 million people and covering 59% of private sector employment. In the U.S. there are almost 28 million small businesses and of those over 22 million are self- employed with no additional payroll or employees (these are called nonemployers). This recent growth, more than in recent years, means many new entrepreneurs will be in the know with what’s available to help them.
The resurgence of new businesses following the stagnation of the late 2000’s will throw many in at the deep end of what you need to stay afloat financially. The ability to keep your books in the black and stay on track isn’t down to an entrepreneurial spirit; it’s down to knowing what options you have. We’ve compiled a guide to some of the lesser known financial solutions and legal routes to take to help get you started and keep your new business afloat.
Your vision – A robust but realistic business plan
All businesses need a plan, especially to raise funds from banks or investors. Whilst keeping it clear and concise you must be realistic in your expectations as your financial manager will be happy to see you veer on the cautious side rather than being too optimistic. Explain the background to your idea, including what you’ve done between coming up with the idea and writing the plan, what work you’ve done for the business so far and any related career experience which could help with your new venture. Getting these points across will help the bank to build a picture of you and what your business offers.
Remember to differentiate your product or service from the competition, explain exactly what it is and how you will be able to adapt to customer or market demands. Financial forecasts, “what if” scenario contingencies, supplier information and target customers are also important aspects to go over. If you don’t feel like writing one from scratch, there are templates and planners on business banking sites that can take the stress out and give you a helping hand.
Register (Including Licensing) – Make your business legal
You will need to register your company with Companies House, the registrar of companies in the UK. This is quick and easy to do but you need to check that the name is pronounceable, isn’t already taken and isn’t too similar to other local businesses. Additionally, you may want to register your trademark or the name your business will be trading under, if it is not the name of the company. You may also need to obtain various operating licenses (for the US) depending on the type of business you are operating.
Other tasks include preforming a fire risk assessment. You must do this yourself with the aid of a guide (US) but advice can be sought from local fire and rescue authorities. And don’t forget to decide on your place of business, is it home based or are you renting an office? These need to be updated in your legal files.
Who’s the boss? Determine the ownership structure
It is important to lay out exactly how the company is going to be legally structured. Detail how many owners there are, how personal liability will be limited in the event of a claim or debt and how the structure will affect taxes. In general, incorporating is the best means of limiting liability but some of the main types are a Sole Trader, a Partnership and Limited Company.
If you start working for yourself, you’re classed as a self-employed sole trader, meaning you are responsible for the whole business – you don’t actually have to work alone.
A partnership involves personally sharing responsibility for the company – each partner will pay tax on their share of the profits whilst still being liable for any losses or bills the business encounters.
Limited Companies are organizations that run your business – they are responsible for everything they do and their finances are separate to your personal finances. This means that any profit made is owned by the company which can then be shared after it has paid Corporation Tax.
More in-depth information about this can be found on the gov.uk website or at the SBA.gov, U.S. site.
Get insured – especially if you’re vehicle based
Amongst the most important costs to be factored in is insurance. You need to cover both the business and a vehicle against as many potential risks as possible, especially if you’re dependent on being mobile. You’re going to want Guaranteed Asset Protection insurance. Most frequently bought in conjunction with a vehicle, it also is beneficial when signed up to a long-term contract hire arrangement.
With this insurance policy you are guaranteed that if your vehicle is written off or stolen, you will get the full price you paid for it back and save you or your business going into negative equity. On average, a new vehicle loses 60% of its value after three years and specialist insurers will generally not pay out more than they deem the vehicle to be worth at the time of the incident, so this can be valuable in recouping all of your lost capital.
Surviving the payment terms – invoice factoring
If you’ve shipped your first order but are waiting on payments you may be limiting your growth potential and missing out on additional business. Even chasing late payments can be costly for new businesses when access to liquid capital is difficult. Help can arrive in the form of invoice factoring, and this can release up to 90% of the value of invoices at short notice.
The remainder of the invoice amount is paid after the payment is collected minus some fees as the service provider, usually a bank, will take on the invoice and collect it. Once the factoring has taken place there is nothing more for your business to worry about. This can be handy with late invoices where the investment in recouping the capital may outweigh the immediate needs of the business.
By learning more about which financial options are available to you, you will ensure that your business has the best chance of weathering any storms. Mentioned above are just some of the essential questions to ask that new businesses encounter in their infancy. Extensive research is paramount to getting ahead and staying there.
