How to start your own business
Similar to a game of Jenga, building a small business is also a delicate and difficult process and as you strain to build and expand, you may often get the feeling that everything may topple over at any moment. The extent of bureaucratic red tape that has to be cut through can cause distress to many a person. From the moment you register your company till the time you start paying salary to your staff, if you have an understanding of the basics involved, you can end up saving a lot of time and energy. Let us take a look at the processes involved in setting up a small business.
Register Your Business
For novice entrepreneurs, registration of their limited company with the Companies House is the first process towards starting a business. This process can be an administrative ordeal for some people. Fortunately, there are company registration agents who can help in this process. Some agents like The Company Warehouse offer the service free of charge while some charge a nominal fee. The process of registering people with HMRC as sole traders is also done by the agents.
Agents can help in getting over the finer details. Over 200 words are classified as ‘sensitive’ and cannot be used in a company’s name or can be used only if permission has been obtained from the relevant body. For e.g. the word ‘bank’ can only be used only if you are functioning as a bank.
New companies are also required to maintain a number of detailed records. The 2006 Companies Act mentioned a whole list of documents that companies would have to maintain for them to be legally compliant in the complete sense. For e.g. the minutes of board meetings (even if the company has only one employee), share certificates, etc
Keeping an account of your money, the income and outflow; are important factors that should be considered by all new companies. Should the finances be handled by an accountant or should it be done by yourself? Should the accounting software that is to be used be a paid one or one that is free? First time businesses often feel tempted to cut back on their investments in the finance department, but doing so would only result in problems later on as the business expands.
It is in the best interests of new businesses to primarily tackle the important, financial management jobs that can seriously affect the working of the company like the simple bookkeeping job to compliance issues. When taking into account the purchase of accounting software, purchasing the apt one is similar to purchasing clothes for children where it would be the right fit now but would be outgrown soon.
When choosing to employ an accountant, instead of choosing the first person you come across online, search for a person or company that is compliant with the needs of your business. Smaller accountancy firms that have most probably gone through the hardships of starting a business themselves are more likely to dedicate time to helping their clients step by step.
The Tax Issues
When the financial area is taken into account, the new entrepreneurs have lots of regulations to comply and overcome. Primarily, there is the registration for VAT (which is currently 20%). If the revenue from your business exceeds £81,000 per year, then you are legally bound to get your business registered for VAT. The process takes up to 14 days and can be done for free. You can choose to register your business for VAT even if your revenue is less and the benefits of doing so would depend on the growth of your business.
By starting your SME, you would be joining 99% of businesses in the UK whose greatest concern is paying the business rates tax. This is a rate calculated by multiplying the “rateable value” of your property and is applicable to most business or non-domestic properties. Though a small relief in the business rates is available to be applied for; most SME’s maintain a hostile attitude towards the business rates.
If your business is a small one that you are conducting from your home (there are 2.9 million such businesses in the UK), you can get an exemption from business rates provided you have given information to your local council regarding the same. An assessment would be conducted from your home by The Valuation Office Agency (VOA) to consider whether you should be exempted from paying business rates. You will get exempted most of the time, but, one has to make sure that you fulfil all conditions.
For small business owners, one big hurdle they will face is when they start employing staff are the HMRC regulations that come into the picture. Any employee who earns more than the lower threshold which is currently £5,772 per annum will have to be registered on PAYE, which is used by the HMRC for the deduction of national insurance and tax. Even if you are the only employee of the company, you will have to register with PAYE.
Before the employees can be paid, you will have to register yourself as an employer with the HMRC before the first payday. You have to be prepared for this registration process as it can take up to two weeks to complete. If the employees in your company number less than 10, you can take the help of the free PAYE software that HMRC has released and that helps perform most payroll tasks.
BYOD: The future of SMEs?
It has been found that setting up IT has been one of the greatest difficulties faced by most of the SMEs. There are many options available nowadays to simplify things as IT is a very important part of starting any business. Encouraging the fast growing “bring your own device (BYOD)” model wherein staffs are encouraged to work on their personal laptops or tablets is one method to bring down the costs and increase staff flexibility. Cloud systems like Drop-box , Google Drive or or a Share-Point websites can be availed to share documents. The important factor is to determine whether your business can run with just laptops and a cloud server or does it actually require desktop computers and an in-office server?
If you are a person who is not familiar with tax issues or have difficulty in understanding the legal jargon, setting up a business for the first time may pose a difficulty. You may feel that money is being diverted out of the business rather than into it. Nevertheless, using the resources and benefits that are available in a strategic manner can help you to reduce costs and undue stress. Stress upon yourself the fact that developing your business idea and, getting the administration processes required for it done the right way are both equally important.