6 financial steps every start-up must take on the path to success
According to StartUp Britain, as many as 520,000 new businesses are launched in Britain every year, however the survival rate remains low. In fact, up to a third will fail in their first year and more than half will fail within two years. Finance is often a large and deciding factor in the demise of a new business, so what are the first steps to overcoming what can be a financial minefield, in order to build a successful business?
Size up an accountant
Top tip number one - an accountant can help you with every stage in the process and every point below. They are Britain's most trusted business advisors according to Sage's business customers. Your accountant should become one of your best friends as they will, metaphorically, be the ones that keep you out of trouble and always show your best side to the world.
Work out your start-up costs - and how you'll cover them
Start-up costs must be minimised as much as possible. The ideal scenario is to use what you have already until the business generates enough profit. Alternatively, borrow and exchange with other businesses. You might need to buy equipment, stock, furniture, etc, but only buy if there's a sound business reason and you have no other option. Consider exploring second hand options first. Don't expect to get a loan or grant to help start your business - you will probably have to use your own money. Some investment from your family might be an option, but get a basic legal agreement drawn up to make sure everyone knows where they stand. You might have to wait until you can draw wages, so think about how you will get by in the meantime - your accountant can work through the numbers with you to make it work.
Open a business bank account
If you set up a company, you should open a company bank account. As a sole trader you could use your personal account, but it's advisable to have a separate business bank account so you can more easily distinguish business and personal income and expenditure. An accountant can make the options easy for your particular circumstances. Contact your bank to ask about their account charges and services, but shop around for the best deals.
Set up your books
By law, you must maintain accurate financial records (‘bookkeeping') and you must retain yearly records for six years. Electronic bookkeeping (i.e. using software) is quick and convenient and provides additional features that can help you stay in touch with your finances and run your business more effectively. Look at off-the-shelf software, either on disk or online, to help you keep track of your business assets. At first you won't need complex tools so make sure whatever you choose has just the features you need to get off the ground. If you're a solo operation, consider online systems that keep records in a remote location like a cloud server. Your accountant can guide you on the best business software and smart phone apps suited to your company, as it grows. The right software will allow them to work with your numbers if you're bookkeeping for yourself so you don't have to cart a bag of receipts with you. Finally, make sure you find out about expenses you can deduct from your business income to minimise your tax liability and retain all receipts and invoices as proof of purchase.
Create credible cash flow
Start-ups will not survive without managing the company cash flow efficiently, after all, the ability to pay bills or pay employees on time is vital. Beware of the common misconception that if the books show a profit at the end of the year, then the business is doing well. This is not necessarily the case. Smaller businesses can often be pressured by larger businesses with longer term payment terms. What once was 30 days, is now as much as 90 days with some organisations, which ultimately puts significant pressure on a small businesses finances. In order to counteract this, small businesses must place a large focus on their cash flow management - including tight control over credit and forecasting for example. Having an instant insight into what your back balance and cash flow looks like is an absolute priority - without it a business is heading for trouble. Online accountancy software solutions let you check the figures in real time for instant piece of mind.
Ask the experts
There are many excellent websites that offer free advice to start-ups, such as Gov.uk, as well as sources such as your local enterprise agency and your bank. Moreover, many people turn to the services of their accountant when setting up a company, which helps ensure tax efficiency. As well as taking care of returns, accounts and tax-related administration, usually for a monthly fee, a good accountant will provide sound advice to help your business grow and prosper well beyond mere numbers. Accountants are increasingly working in the ‘cloud' via online collaboration tools so they can fit in with the busy schedules of a hectic business owner.
Starting your own business can be very daunting, particularly when putting your life savings into a new venture. But if you take heed of these simple steps and make the most of the advice and support available, you'll be well on your way to navigating the financial minefield and giving your business the best chance of success.
Just make sure you've got instant access to your accountant - any place, any time!
Post Date: February 25th, 2016