Broomfield & Alexander publishes a series of articles focusing on business advice and information. This article appeared in the Business Advice column, Western Mail, 29 September 2010
With so many jobs being lost at the moment, people are increasingly looking at self-employment – and, in fact, this may be a good time to set up in business.
The first Coalition Government is certainly encouraging – and incentivising – it. Since the last budget, new businesses starting up outside London and the South East will not have to pay national insurance contributions for their first 10 employees, subject to certain conditions.
But beware, setting up your own business may not be as easy as you imagine. To begin with, it’s important that you have done your homework to ensure that your business idea is a sound one. You should prepare a written business plan and financial projections to show you can make a profit, and will have enough cash to make your business work.
This leads neatly into the funding of your business. Perhaps you have had savings which you are going to use to purchase the necessary assets, and to provide the initial cash flow. Or you might need to approach a bank for a loan or to finance assets on leases or hire purchase, or raise equity or share capital for your business, through friends, family or third party “business angels”.
Before reaching this point, you should appoint an accountant, an expert in new business starts, who can advise on the most suitable business vehicle to trade under, all of which have differing tax treatments and varying levels of exposure to risk. You can trade as yourself, in partnership with others, form limited liability partnership or most commonly, form a company limited by share capital.
Next, you need a bank account and to consider registering for VAT. The current turnover threshold at which you must register is £70,000 pa, but you may choose to register before reaching this limit. Once registered, you can account either on a “cash received and paid” or “invoice” basis and taking advice on this point would certainly be wise.
You have to register with HM Revenue & Customs within three months of starting to trade, or face an automatic penalty. The accounting function of your business is a vital one, and it is important to choose the correct accounting software for the scale of your business. You should be producing regular monthly accounts to monitor performance, and you may need the assistance of an accountant to produce them or to provide external comment. If you have borrowed money from the bank, they may well make it a condition that you provide such information monthly or quarterly.
If your business involves employing people, seek advice. Employment law is extremely technical and it’s easy to make mistakes which can be extremely costly in the long run.
Finally, you should take out an appropriate level of insurance cover for the type of business and, again, you would be well advised to consult a qualified insurance broker.
There is a lot involved in starting a new business, and sometimes the sheer the weight of dealing with compliance matters and regulations can make people feel very weary. It’s therefore vital that you have a great passion for the business you want to start – only that will create a commitment to see it through any difficult times.
For more information on setting up a new business in Wales, please contact Mark Jones