Businesses often struggle in their first year. In fact, fifty percent of start-up businesses fail in the first year, and ninety-five percent fail within the first five years.
And yet, we continue to see the SME market grow year after year. Why is this? Most people nowadays want to work for themselves, not someone else.
It’s hard to judge whether your passion project will be a success or whether you’ll be able to fulfil your goals and ambitions. But it’s worth the risk, surely?
We’d argue it’s not worth the risk – unless you have the right advice and knowledge to start with.
In four key steps, let’s look at the importance of accounting for your fledgling business.
Hire an accountant
It’s the hardest step for many business owners, but as soon as you relinquish your financial control, you’ll feel a weight off your shoulders.
Your financial records are vital for building confidence in yourself, your staff, your products, and most importantly, your clients and HMRC. If things get tough, and you’re coming up short, you don’t want to be without the tools to resolve your problems.
Professional expertise is vital to maintaining and gaining a firm financial foundation and allowing you to spend time doing what you wanted to do when you set up the business.
An accountant will:
- Provide years of knowledge and insight, forming a bond with you that’s more than just an adviser.
- An ability to spot problems before you could.
- Offer you advice and act accordingly on issues such as tax legislation, PAYE etc.
- Keep you up to date with changes to government legislation.
- Try to find the best ways to encourage growth within your business.
Hone in on your niche
Now that you’ve got the finances in hand, you can focus on building a solid business proposition that will work for your clients.
It’s a common trope used in business, but it remains just as important – find your niche. What makes your business different from the rest?
If you’re already set on your idea, what can you do to make it unique? How is what you’re offering different from the rest?
Talk to the rest of your business, and discuss the next steps – it’s worth presenting your ideas so that everyone understands where you think you should be going and giving them a platform to discuss things further.
Or if you can’t talk to a colleague or friend, talk to your accountant. They’ll already know your business by this point, so they’ll be able to help you wherever you need it.
Choose the right structure
Whatever your structure, there are key obligations that will need to be fulfilled in order to keep HMRC happy and make your business a success from day one.
There are clear differences between the various business structures – sole-trader, partnership or limited company.
Sole trader or partnership
Going into business as a sole trader or partnership is an easy process. Just register with HMRC, and that’s it. There’s no need to publish your accounts publicly, and you’ll only pay tax on your profits.
But if push comes to shove, and you find yourself in lots of debt, you don’t really have protection. Your debts are linked to you, so you could have your personal assets seized if you can’t pay them.
Registering a business as a limited company isn’t an easy process and will take a lot of time to get right. There are more responsibilities and regulations to adhere to – letting HMRC know your employee count, paying national insurance, income tax etc.
But you’re protected through limited liability, so your assets won’t get seized should things go badly. And your reputation will be bettered by the perception operating as a limited company brings to the negotiating table.
You’ll have to publish a yearly basic financial report and make that available for everyone to purchase, but this will be easy to manage, provided you’re doing everything right.
Get the right system
Picking the right accounting system is vital to maintaining a healthy set of accounts, as you need to have a tool that works for your needs.
The software package is, of course, entirely at your discretion. Talk to your accountant and find the best package for you.
They will doubtless have programs they advise (we specialise in Xero) and will explain why it’s a good or bad fit for your business.
As a rule, we’d always advise cloud accounting these days unless you have a very good reason. A spreadsheet (or series of spreadsheets), or even worse, a paper ledger, leaves you with room for error, corruption, and general user issues.
Cloud accounting serves as one point of truth and will change how you do business.
Get in touch with us today to talk about your startup business.