Starting in Business – the right structure?
This is our second blog in relation to starting a new business. This blog covers some of the issues you will need to consider once you have made a decision to start your own business, including the choice of a business structure to operate your business.
The first in this series of blogs “Am I sure?” aimed to ensure that you are aware of what starting up in business can entail. The final article helps clarify the tax implications of your new business and how to deal with tax.
Many people assume that everyone who has their own ‘business’ runs a ‘company’. However, the two words do not mean the same thing. There are actually four common forms of business structure:
- a sole trader – this is the simplest way of starting and running a business;
- a conventional partnership – where you work with one or more partners in the business);
- a limited liability partnership – LLP – this provides you and your partners with the protection of limited liability, just as with a company; or
- a limited liability company – this means that the business is quite separate to you as a person. It also means that you cannot simply draw money from the business whenever you feel like it.
Which approach is right for you will depend on a number of factors. These include your cashflow projections, your longer term plans for the business, whether or not you need the protection of limited liability, your willingness to comply with legal and administrative obligations and the nature of any investment you are seeking.
There are also tax issues to consider. In many cases it is better to start the business as a sole trader or partnership and only to transfer it into a limited company at a later date. This might be only when it seems that it will reduce the overall tax you pay on business profits. We will address the tax issues in more detail in a future blog.
Even businesses that operate over the internet need letterheads and invoices. Although you can choose the look, layout and design of your business stationery there are a number of relevant legal obligations. These specify certain minimum requirements for the contents of business stationery, both paper and electronic. The precise rules will depend on which business structure you have adopted.
Choosing a name for your business is a creative and enjoyable process. It is also one that you need to get right. Customers may infer a lot from your business name and first impressions count.
While it may be tempting to try to stamp your individual personality on your business name, there are many other issues to consider. Being objective and choosing a name that reflects your business strategy can be more valuable, especially as your business develops. You will also want to choose a business name that won’t be confused with anyone else.
Will your business be reliant on people finding your website when they search for the sort of services you provide or the goods you sell? Or will your website be more for people who already know of you and so that they can find out more information?
The design of your website and the need for any ‘search engine optimisation’ will depend on what you want the website to do for you and what you want people to do when they arrive on the site.
It is very easy to spend a lot of money on a website. There are also many low cost options for startup businesses, including blogs that look like business websites.
Whichever approach you choose you will need to ensure that your business website satisfies all legal requirements in terms of your business name and contact details.
Paperwork and records
All businesses need to keep records of all business income and expenses.
These records can be maintained by hand (but see our blog on Making Tax Digital) or may be computerised. They should always contain details of payments, receipts, credit purchases and sales, anything you have bought for the longer term (assets) and all the money owed by the business (liabilities). It’s also very important to be clear as to the distinction between your money and that of the business – especially if you have a limited company.
It can be expensive to pay someone to sort out all of your paperwork so it makes sense to establish workable processes from the outset. There are many options here ranging from online accounting programmes, to computer based accounting software, to spreadsheets and paper based data entry books.
We would be happy to recommend a solution that is appropriate for your needs.
Your books and records will be used to produce your business accounts. If the records are well kept, it will be easier to create your accounts. If your business grows quickly, you may need regular ‘management accounts’ through the year.
All businesses must produce annual accounts each year for HMRC. These will show your accounting profit or loss. They will normally also show the assets owned by the business and the monies owed to you and to other people.
The style and detail of your accounts will vary dependent on the level of your turnover (sales) and on the structure of your business.
Limited companies and LLPs are required to produce their accounts according to very strict standards and have to send them to be filed at Companies House each year. Strict penalties are charged for the late filing of accounts.
Accounting year end
At an early stage you need to decide when your first accounting year will end.
You will often benefit from choosing a convenient date rather than the anniversary of when you started in business. Thereafter your annual accounts will normally be produced to record the next 12 months’ results.
We can help you to decide on the most convenient date for your accounting year end depending on your circumstances and plans.
In our final blog in relation to starting a new business, we consider the taxes that are relevant when you start up a new business.
How can Essex Abel help?
Essex Abel’s team have many years of advising people in starting up in business and offer a FREE consultation to discuss your plans, if you would like to take advantage of this offer, please contact us.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. Neither Essex Abel Ltd nor the author accept any responsibility whatsoever for any action taken based upon the information included in this article.