Working for yourself and running a start-up business can be a dream come true for many, being both rewarding and profitable. However, if taking the risk and setting up on your own is something you’re willing to do, make sure you know which financial pitfalls to avoid. We’ve put together a guide below, covering some of the common money worries new business owner have, plus how to avoid them with our expert pointers.
Just Starting Out? Get advice before you jump ship and set up
If you haven’t set up your own business yet, or at least fully committed financially, get some advice. Government supported advice services are easy to access and can cover a lot of the groundwork that you might not be aware needs to be covered, such as writing a reasonable business plan.
Setting Your Business Plan Straight
As mentioned, the first thing you’ll need is a business plan: this is the key to help unlock investor or bank finances for your business, so make sure it’s robust and realistic. Keep your vision for your business clear and concise to prove to investors and the bank that you’re serious, realistic in your outlook and know what you need the cash for. Don’t worry about being overly cautious, this will play to your advantage as your financial manager would rather you weren’t unrealistic.
Set out what your business structure will be
You’ll need to decide what type of business you’re going to be running and choose its legal structure. In the UK there are three main options: Sole Trader, a Partnership or a Limited Company (Private or Public). Here’s how they work in brief.
Sole Trader – This doesn’t only apply to those who work on their own, it does, however, mean that you will solely be responsible for the business as you’re considered to be self-employed. Your responsibilities are legally binding so that any debts encountered by the business puts your personal assets at risk.
Partnership – This business structure is similar to how the Sole Trader model operates, however, the responsibilities of the company will be shared between partners. There is no maximum number of limited partners; however each must pay the relevant tax on their share of the businesses’ profits. Additionally, each partner is equally responsible for business debts with personal assets at risk if the business defaults on any payments.
Limited Company – The most common structure for larger organisations and those not wishing to risk their personal assets for their business is the Limited Company. These are organisations set up to run your business where many levels of management can be added. Any debt, profit or tax is linked (limited) to the company itself, meaning that if the business was operating at a loss and fell into negative equity, no personal assets would be at risk. Depending on where the business is registered in the world (for the UK it’s simpler), you’ll have to pay Corporation Tax on any profit before it can be paid to company directors.
Arrange start-up funding
Every business needs capital to start trading, be it for labour, trade goods, rent or advertising; so you’ll want to secure your finances before taking your first order or opening your doors.
Capital can be from a variety of sources such as personal savings, angel investors, business loans or grants. Business banking is the most common method of securing financial support.
Where to put your cash
Business current accounts for start-ups can offer overdrafts, reduced rate or free balance transfers and a dedicated financial advisor for your business. Start-up specialised accounts like these are typically only available for business that have been in operation for 12 months or less, but may extend the services for up to 24 months after opening an account, so your fledgling years will get a helping hand.
Getting your loan
Typically start-up loans are available for those seeking between £1,000 and £25,000, repayable between one and ten years. These are classed as small business loans and are one of the most common forms of financial support for businesses in the UK. Sometimes used for paying wages, hiring contractors and buying stock, the small business loan is the staple of a start-up.
If you’re looking for more than £25,000, to purchase, refurbish or develop premises for example, you may want to look at securing a Commercial Mortgage. These are similar to residential mortgages in that any capital loaned is borrowed against commercial property such as assets, buildings or business real estate. It’s only available to businesses though.
Get professional help
If you’re a determined entrepreneur, you may feel that seeking advice on how to run your business isn’t for you. However, there are several financial and business experts you can easily access to get a professional outsider’s opinion on your new venture.
As mentioned above, if you’re opening a business current account with your bank, not only are you often getting the overdraft facility, free transfers and a business chequebook, you’re getting access to impartial advice.
Business banks want your business to succeed as much as you do. Advisors can give you pointers on your business vision and financial planning, based on their experience working for years with similar business.