Launching a startup business is an exciting but scary time. Once you’ve come up with the idea, you’ll have to develop a strategy, and deal with all the admin involved.
The number of businesses registered in the UK grew by 55% from 2000 to 2015, and whilst owning a business is incredibly satisfying, it’s certainly hard work.
One thing you’ll need to get on top of right from your launch date is your accounts. If you’re not that confident with numbers, don’t worry. These 8 steps will help to get your start up business’ finances and accounts on track, so you can turn your attention to the more interesting aspects of your business.
1. Open a Bank Account
Once you’ve legally registered your business, you’ll need somewhere to safely store your business’ income.
Whilst it’s not a legal requirement to set up a separate business bank account in the UK, it can certainly make life easier, as you won’t be combining your business’ finances with your personal funds.
Before setting up a business bank account, it’s important you do your research. Shop around for fee structures and account options, so you can pick the account that’s best for you. Be aware that fees can be higher compared to personal accounts, so make sure you know how much you owe.
Once you’ve opened your business checking account, you can then set up any savings accounts you need, to plan for taxes or organise any required funds. You may decide for instance, to set up a separate account where you put a pot of money aside each month, which will go towards your taxes at the end of the financial year.
You’ll also want to consider getting a credit card, so you can start building your business’ credit. When applying for one, the lender will likely look at the business’ credit score as well as your personal one, before deciding how much to offer you.
Opening a business bank account in the UK is a fairly simple process, as you’ll usually only be required to give proof of ID for all named company directors, and proof of address.
2. Monitor Your Expenses
You should ensure that for every step of the way of your start up, you keep your business and personal finances separate.
One of the ways to do this, is by monitoring your expenses, and this is a requirement for all businesses including sole traders, and partners in a business partnership.
It’s certainly worth doing anyway, as you’ll then be able to monitor your business’ growth, build financial statements, keep track of deductible expenses, prepare tax returns, and support what you report on your tax return.
Establish a system of organising your receipts: whether you store them in a folder, or download an app, pick the way that’s best for you.
If you work from home, then you’ll be able to claim a portion of the cost of your council tax, heating, lighting and broadband. Check out the Government’s website for more details.
3. Develop a Bookkeeping System
Bookkeeping is the day-to-day process of recording the financial affairs of your business, and this can be as easy as setting up an Excel spreadsheet or buying a notepad. The key is to choose the way that’s best for you, so you don’t make things overly-complicated.
As your business grows, bookkeeping can take up a lot more time, so you may decide to hire someone to manage this for you.
As a small business, cash basis accounting may be more suitable than traditional accounting methods. Cash basis means you only need to declare money when it comes in and out of your business, so when it comes to the end of the tax year, you won’t have to pay income tax on money you didn’t receive in your accounting period. The Government explains this in more detail here.
4. Set up a Payroll System
As a start up, it’s likely it’ll just be you at the beginning. However, as your business develops over time, you may decide to hire a regular employee, or even a freelancer to help you out.
When this time comes, you’ll need to have a system set up in place where you can pay your employees.
You’ll need to ensure you’re registered as an employer with HMRC, and then get a login for PAYE Online.
If you have less than ten employees, you can access free payroll software, which you can find a list of here. Make sure you read through the features, as things like payslips and pension payments may not be available on all systems.
The Government provides a comprehensive guide on setting up a payroll system here.
5. Read up on Import Tax
Depending on your business, you may want to purchase or import goods from other stores to sell. If you’re importing products, you’ll need to brush up on your knowledge of taxes and duties.
Different rules will apply depending on whether you’re importing goods into the UK from inside or outside of the EU. You can get up-to-date information on this from the Government.
6. Sort out a Payment System
You’ll need to find a way to accept payments before the sales start rolling in. If you have a physical store than cash will work, but you’ll also want to be able to accept credit and debit card payments such as Visa and MasterCard. You may also want to set up PayPal.
Providing several methods means that customers can pick the channel that’s most convenient for them.
7. Calculate Your Tax Obligations
From corporation tax to VAT, you’ll need to determine what tax you are responsible for paying, so you don’t get caught out.
For instance, you won’t be billed for corporation tax, but you’ll still need to know how to work out, pay and report your tax. More information about tax can be found on the Government’s website.
8. Determine Your Gross Margins
In order for your start up to become more profitable, you’ll need to improve your gross margins.
Whilst you undoubtedly already know this, it’s worth going through a couple of definitions:
Gross Margins: Your start up’s total sales revenue, minus the cost of goods sold, divided by total sales revenue. The final figure is displayed as a percentage.
Cost of Goods Sold (COGS): These are the direct costs incurred in producing products sold by your start up, including materials and labour costs.
Essentially, gross margins are the difference between how much you sell a product for, and how much of that money you get to keep for yourself.
Starting a business can be overwhelming, but by following these 8 steps, you can rest-assured you’ll have your start up’s finances in order right from the get-go.
As your business expands, you’ll want to review your methods, as you may decide to outsource your finances to an accountant, or find another way to streamline these processes. For more tips on how to optimise your start up, head on over to our blog.