The time for starting your business is fast approaching. You’ve researched your idea, got feedback from a range of people and made the commitment to start. This blog considers administrative and financial management aspects of running a business..
1. What business format should I adopt?
Think about the business format that most suits you and your business:
- Sole trader
- Partnership
- Limited liability company
- Limited liability partnership
Each has advantages and disadvantages in terms of rules you have to comply with, potential liabilities from trading activities and taxation liabilities. This needs to be decided very quickly because you will need business stationery such as invoices, letterheads and business cards which must contain the correct information regarding the format of the business.
2. Who do I need to notify I’ve started a new business?
If you have chosen to be a sole trader you must notify the Inland Revenue (now HM
Revenue and Customs) within three months of starting. To register for VAT you must notify HM Revenue and Customs (HMRC). Dependent upon the nature of your business and whether you are operating from a business premises, there may be other bodies you should notify – such as your local authority, insurance company, etc.
When a company is created, Companies House will notify HMRC, who will send you a form CT41G that must be completed by all the directors within three months of issue.
3. What accounting records are required by HMRC?
Every business registered for VAT has to keep its records according to the guidelines laid down by HMRC. Similarly, it is a requirement of the Companies Acts that every company should keep proper accounting records of money received and paid, of all sales and purchases, and of assets and liabilities.
HMRC requires every business, no matter what its structure, to keep proper records for PAYE and for the calculation of tax liabilities. In some types of business, there are additional records that have to be kept to satisfy government requirements. If your records are inadequate in any of these areas, you could fall foul of the law.
4. Keeping your own financial and business records
Annual accounts are not enough to control a business. You must know what is happening to profits and losses on a much more regular basis. Most businesses need to produce operating statements at quarterly intervals at least and, better still, at monthly or even weekly intervals. There are even some businesses where daily financial information is essential.
Prepare regular management accounts – at least monthly. Review the Balance Sheet. What are the main changes? Check the ratios for liquidity and profitability. Is the working capital increasing? Decide the actions you need to take to reduce the capital employed.
In the early years of a business cashflow is absolutely vital. Establish regular procedures for credit vetting customers, invoicing customers, chasing debtors. Similarly with processing and paying creditors. Delaying creditor payments can damage the business’ credit rating leading to difficulty getting supplies on credit.
Businesses need to plan ahead and compare forecast figures with actual results. Breakeven analysis, business ratios, budgets and discounted cash flow, perhaps built into a financial model on a computer – these are some of the methods which can be used to set realistic financial targets and then keep you on course to achieve them.
5. Use standardised accounting software
Using computers to run the accounting, management information and the communication systems can make a big difference to the non-productive time you spend on your business. They free-up time to develop the business and speed communication.
The ICAEW Accreditation Scheme gives members’ access to reliable and independently evaluated software products. All the products on the scheme have satisfied our robust technical evaluation criteria and are from companies that are financially sound and offer strong customer support.
Clive Lewis
Head of Enterprise