And while choosing a business name, finding customers and getting your website up and running might be the things you’re most excited about, there are some less glamorous jobs that are just as important.
Getting your finances and accounting systems right from the beginning can save you time, money and a lot of headaches later.
Here are 10 things we’d recommend getting right in the first few months of running your new business.
1. Choose the right business structure
One of the first decisions you’ll need to make is whether to operate as a sole trader, partnership or limited company.
There isn’t one structure that is right for every business. Your circumstances, expected profits, personal situation, plans for growth and the type of business you’re running can all affect the decision.
It is worth getting advice before you register, rather than choosing a structure simply because someone you know uses it.
If you’re setting up as a sole trader, you generally need to register for Self Assessment once your self-employed income meets the relevant criteria. If you’re setting up a limited company, the company needs to be registered with Companies House and there are additional responsibilities for directors and shareholders.
Our tip: Don’t make the decision based solely on which option appears to have the lowest tax bill. The right structure needs to work for your business as a whole.
2. Keep your business and personal money separate
Even if you’re a sole trader and legally there isn’t a separate legal entity, having a dedicated business bank account is a very good idea.
It makes it much easier to see:
- What money belongs to the business
- Which expenses are business expenses
- How much you’ve actually made
- What you’ve taken out of the business
- What money you have available to pay your bills and tax
It also makes your bookkeeping much simpler.
If you operate through a limited company, keeping company and personal finances separate is essential. The company is a separate legal entity, so its money isn’t simply your personal money.
3. Set up your bookkeeping system from day one
This is one of the biggest favours you can do for your future self.
Don’t wait until your first tax return or year end to think about bookkeeping.
Set up your accounting software at the beginning and get into the habit of recording transactions regularly.
Cloud accounting software can make this much easier. At Accountancy Solutions, we work with systems including Xero, QuickBooks and Sage, and can help businesses choose and set up a system that suits the way they actually work.
You can find out more about our bookkeeping services and training and support.
Our tip: Good bookkeeping isn’t just about keeping HMRC happy. It gives you useful information about how your business is performing.
4. Keep your receipts and records
That receipt you think you’ll remember six months from now?
You probably won’t.
Get into the habit of capturing receipts, invoices and other financial records as soon as you receive them.
Digital receipt capture can make this much easier. Instead of keeping a growing pile of paper in a drawer, you can capture documents electronically and link them to your accounting records.
This is particularly important because your bookkeeping is only as good as the information you put into it.
And if you’re sending invoices to customers, don’t forget to check that they contain the information they need. Our invoice checklist is a useful starting point.
5. Know what you can claim as a business expense
New business owners often worry that they’re either claiming too much or not claiming enough.
The important thing is understanding the difference between something you have bought personally and a genuine business expense.
Depending on your circumstances, you may have allowable expenses such as business insurance, professional fees, software, office costs, travel and other costs associated with running your business.
There are also specific rules around things such as working from home, vehicles and equipment.
Don’t guess. If you’re unsure whether something is a business expense, ask before making assumptions.
6. Don’t spend your tax money
This is probably one of the most common mistakes we see with new businesses.
Your bank balance is not the same thing as your profit.
And your profit isn’t necessarily the same thing as the amount you can safely spend.
As you start receiving payments from customers, get into the habit of putting money aside for your future tax bill.
For sole traders, this could include Income Tax and National Insurance. For limited companies, there may be Corporation Tax, PAYE, VAT and other liabilities to consider.
The exact amount you need to set aside will depend on your circumstances, which is why keeping your accounts up to date is so important.
7. Keep an eye on VAT
You don’t necessarily need to register for VAT just because you’ve started a business, but you do need to understand when VAT registration becomes relevant.
Currently, you generally need to register if your taxable turnover goes over £90,000 in a rolling 12-month period, or if you expect it to exceed £90,000 in the next 30 days. Voluntary registration below the threshold is also possible.
The important word here is turnover.
Don’t wait until your year end to discover that you’ve crossed the threshold.
If your business is growing quickly, keep an eye on your rolling turnover throughout the year.
8. Understand how you’ll pay yourself
One of the questions we hear from new business owners is:
“How much can I take out of the business?”
The answer depends on how your business is structured.
For a sole trader, taking money from the business is generally treated as drawings rather than a business expense.
For a limited company, money taken by the director needs to be treated correctly. Salary, dividends and director’s loan transactions all have different rules.
It is worth understanding this before you start transferring money between your business and personal accounts.
9. Put your deadlines in the diary
There is nothing worse than discovering a deadline the day before it is due.
Depending on your business structure and circumstances, you may have deadlines for:
- Self Assessment
- VAT returns
- PAYE and payroll
- Corporation Tax
- Annual accounts
- Confirmation Statements
- Pension obligations
- Making Tax Digital requirements
The exact deadlines will depend on your circumstances.
The good news is that you don’t need to remember everything yourself. Your accountant can help you understand what applies to your business and when.
If you’re running a limited company, our annual accounts service can take care of the preparation and submission of your accounts and help keep your statutory obligations on track.
10. Get advice before you need it
You don’t have to wait until something has gone wrong before speaking to an accountant.
In fact, the earlier you get the basics right, the easier things tend to be.
A good accountant should be more than someone who prepares your accounts once a year. They can help you choose the right structure, set up your accounting systems, understand your tax position, keep your bookkeeping under control and use your financial information to make better decisions.
At Accountancy Solutions, we work with small businesses, sole traders and limited companies across Hampshire and beyond. Our approach is practical and straightforward. No unnecessary jargon, no making things more complicated than they need to be.
You can find out more about the services we offer or get in touch with our team.
Your first few months don’t have to be complicated
You don’t need to have everything figured out on day one.
But getting the foundations right can make running your business much easier.
Set up the right structure. Keep your business finances separate. Get your bookkeeping system working. Keep your records. Understand your tax responsibilities. Keep an eye on your numbers.
And, perhaps most importantly, don’t be afraid to ask for help.
Starting a business is exciting. Your finances shouldn’t be the bit that keeps you awake at night.
Download our checklist for your first 30 days in business – HERE
If you’re starting a business in Hampshire and would like some straightforward advice on getting your accounts and bookkeeping set up properly, talk to Accountancy Solutions. We’d be happy to help you get started.