AFi nanci al Gui det o St ar t i ngYourOwnBus i nes s

Finura Partners Limited is a full-service financial planning practice, set up in February 2014 by a team with over 35 years’ experience in financial services. They understand that each client’s position is unique and will work closely to establish your financial objectives, review your current position and provide a comprehensive and efficient plan to help you achieve your aims. Technology and a refreshingly modern approach to financial advice are central to their philosophy. In this article, Finura Partners Limited’s Financial Adviser Richard Herdsman offers some advice on the financial implications of starting your own business. Raising Finance There are many avenues to consider when seeking funding to grow your business - will you be seeking financial help from family or friends, seeking grants from charities and trusts or applying for loans from banks and building societies? Raising finance needn’t be a stressful part of starting up your own business, as long as you approach it armed with all the information that an investor could possibly ask from you. There are tax breaks and relief which can encourage investors to back your business. The SEIS (Seed Enterprise Investment Scheme) offers 50% tax relief and with the EIS (Enterprise Investment Scheme) you can raise up to £15m over the lifetime of your business and investors can back up to £1m each year. Crowdsourcing has become an increasingly popular route for gaining financial backing as the risk is spread across multiple investors, all of whom invest a (usually) nominal sum in your project which together make up the total amount you require. You can also gain access to a large pool of experts, each of which have specific skillsets that may be of benefit to your particular business model. It can also be one of the fastest avenues to pursue, as there are now 44 crowdfunding platforms in the UK. The Government offers a Start Up Loans scheme, which was initially targeted at young entrepreneurs but now has no age restrictions, meaning anyone can apply for a loan of up to £25,000 to help them get started. Successful applicants also get access to free business advice, something which many entrepreneurs view as important as the funding itself. Companies such as Virgin also have their own entrepreneur start-up schemes, so it’s worth speaking to an adviser about all the available options open to you before going down the traditional bank/building society route. Type of Business Structure When registering your business, you will need to decide on a structure which both suits your current setup and helps define your legal responsibilities. You can change your business structure after you’ve started up if you find a new structure suits you better. There are 5 main structures to choose from: Sole trader When you start working for yourself, you’re classed as a self-employed sole trader. Under this structure you run your own business as an individual and can keep all your business’s profits after you’ve paid tax on them (which is calculated via a selfassessment tax return submitted once a year). You are also personally responsible for

any losses your business makes and also have to make National Insurance contributions too. Limited company Every limited company has ‘members’ - the people or organisations who own shares in it – and is run by Directors who can own shares but don’t necessarily have to. A limited company is responsible in its own right for everything it does and its finances are separate to your own. Any profit it makes is owned by the company and can be shared amongst owners once any corporation tax has been paid. 'Ordinary' business partnership In a business partnership, you and your business partner(s) personally share responsibility for your business. Business’s profits can be shared between partners, with each partner paying their own tax on their share of the profits. Limited partnership and limited liability partnership In a limited partnership, any debt that can’t be paid is split amongst all partners. General partners can be personally responsible for the company’s debts whilst limited partners are only liable up to the amount they initially invested. Conversely, an LLP structure negates partners from personal financial liability of business debts so is an option most businesses tend to consider. Unincorporated association This is the best structure for businesses that weren’t set up to make a profit e.g. sports clubs and voluntary organisations. Individual members are personally responsible for any debts and, should your organisation start to make a profit, you will need to file a company tax return and begin paying corporation tax. Registration with Companies House Should you choose to structure your business as a limited company, then you will need to register with Companies House. To register your business you will need: the company’s name and registered address names and addresses of directors (and company secretary if you have one) details of shareholders and share capital Once the company is registered you’ll get a ‘Certificate of Incorporation’. This confirms the company legally exists and shows the company number and date of formation. The cost is usually about £15. Offices The product or services you are choosing to sell will largely dictate the location of your offices. Do you need a physical presence on the high street? Will clients regularly be coming to visit you on-site? Depending on your answers to these questions, entrepreneurs can either set up their offices at home, or opt to rent space at an external location.

One of the most impactful changes has been the new legislative measures announced by the government last year to help make running a business from home much simpler through the removal of business rates for most new start-ups. The announcement came as a result of research undertaken by the Department for Business, Innovation and Skills (BIS) and Enterprise Nation, who revealed that approximately 70% of new businesses start off in the home and contribute some £300bn to the economy. The key is to strike the right balance based on the current financial status of your business – can you really afford to commit to monthly rental office charges? Will your business growth suffer if you remain to operate out of non-fixed premises? Your financial adviser will be able to offer advice and support to help you make a decision that is right for you and your business. Managing Cash Flow Good cash flow management is essential to keep a new business afloat. When you first start trading, it may feel like all the money is going out and little is coming in but this is completely normal for businesses trying to get off the ground. The key is to manage your outgoings as efficiently as possible and to keep on top of debtors who may owe you money. It would be advisable to only offer preferential credit terms to companies that regularly pay on time and to set up a system that alerts you to overdue payments so that you can keep on top of chasing debtors in order to get the money coming in. If you don’t remind people that payments are due, they will all too easily forget to pay! Another option is to set incentives for early payment. Offering a discount for early payments may encourage debtors to make payments ahead of deadlines, helping you to keep cash flow at a manageable level. Whilst this may incur a small hit on profits to begin with, it can set the path for improved long-term client relationships and help reduce any overdraft interest you might sustain through being low on readily accessible finance. It is also important to plan for seasonal fluctuations. Is your business affected by weather? Are there certain times of year when sales will be significantly higher than others? By planning accordingly, you can spread cash flow out across the year to ensure that better times are able to support the leaner months when income may not be as forthcoming. The temptation to spend money as soon as it comes in can be hard to resist but the old phrase ‘saving for a rainy day’ cannot be reiterated enough. Use of an Accountant versus a Software Package With advances in technology, there is an increasing trend for businesses to manage their own finances through the use of accounting software such as Sage or Quickbooks. The key advantages of using software in-house is that you can speed up the creation of invoices, purchase orders and quotes and easily keep track of when items are due. You can also run internal reports to show what money is due from your customers as well as how much is owed by your business to both suppliers and HMRC. On the down side, some packages can be costly to implement and you will need to undergo some form of training in order to make the most of the package’s benefits – this is

not so much an issue if you are a small company but can become costly as your business grows as you will need to ensure all staff members are versed in using the system correctly. You will also have to take responsibility for keeping on top of the company’s finances, which can be a stressful task and one which you may prefer to pay an accountant to do for you. An accountant will also be able to offer advice on where you can save money, they will save you time and stress and also help reduce errors that could come back to haunt you later. For some business owners, the peace of mind that comes with using a professional accountant is well worth the additional costs compared to managing them in-house. Ultimately, it will all depend on the size of your business and how knowledgeable you are at managing the business’s accounts. Tax Returns As a business that is (hopefully) generating profit, you will need to file a tax return. There is a plethora of components that make up a tax return such as keeping personal and business finances separate, correct deduction of expenses plus any other income that may affect the amount of tax due. Depending on the chosen structure of your business, there will be different taxes to pay so be sure to seek advice about which taxes are applicable to you. During the early stages of incorporation, whilst you are focusing your energies on getting your business up and running, it may be wise to seek professional advice to ensure that your company remains tax-compliant. As you become more versed in the financial side of running your business, you can choose to take on more of the responsibilities yourself. Insurance Even from day one, your new business will require some level of insurance cover; some will be compulsory whilst others are advised but not legally required. As your business grows the kinds of insurance you need will change so it’s important to keep on top of which policies are needed to protect both you and anyone who may be working for you. As a new startup, without employees to account for, the main insurances to consider are Contents, Buildings, Professional Indemnity and Public Liability. For further help and advice on any of the above considerations, please contact Finura Partners via email at [email protected] or by calling 020 3713 3352 for a no obligation consultation to review your current financial position and help plan for your future.