As the first in a series of ‘Start up’ blogs I’m going to be writing on the general subject of Finance For Your Start Up, I thought we should start with the basics.

When you first start up your start up, there can be a dizzying array of things to do. All you want to do is get on with doing whatever it is you want to do, but there’s all these forms, registrations and decisions you never thought you would have to make. To make this a bit easier, here is a list of the first steps you need to take to get the finances of your start up set up properly.

You can use this as a checklist:

1. Legal Entity: Limited Company Or Sole trader?

The first decision you need to make is how to structure your start up. The choice is basically between being a Limited company or being a sole-trader. The difference is the legal entity. For a sole-trader/partnership you personally are the legal entity, with a Limited company, it is the legal entity.

This matters:

  1. If you want to raise funds for your business – most investors will look for shares in a Limited company in exchange for their investment.
  2. If there was ever legal action against your business – being sued or having to pay a debt you can’t afford.
  3. As there are also tax implications – as a general rule, if you are going to have annual profits in excess of £40,000, then it’s usually better to operate through a Limited company

2. Who Owns What?

Decide who owns what in your business. If it’s just you, then that’s easy. If not, be clear at the outset who owns what and if you plan on seeking investment in future, have a structure that enables you to swap finance for shares. Which leads neatly onto the next point….

3. Get A Shareholders/Partnership Agreement In Place

If you’re starting up with other people or with investors, having some sort of agreement in place is essential. Regardless of how good friends you are now, or how little you think your business is worth, money does funny things to people! We’ve seen many people who were once hard grafting entrepreneurs lose change once their business is worth something. Put the agreement in place now and remove the possibility for any doubt.

4. Open A Bank Account

Do this in the name of the business and make sure that only the owners/shareholders/partners are signatories on the accounts.

5. Do I Need To Be VAT Registered?

If your sales for the last 12 months are over the VAT registration threshold, you are legally obliged to register for VAT. If you expect that you will reach that point in the next year, it may be worth getting the VAT registration in place sooner rather than later. You can then reclaim the VAT you have paid on any purchases you’ve made.

6. Are You Going To Have Employees?

If you’re going to have employees in your start up, you’ll need to set up a PAYE scheme. I’d also advise getting some payroll software – or even better, completely outsource your payroll. It is possible to file payroll direct with HMRC, but with Auto Enrolment pensions (a whole other topic!) being administered through PAYE schemes, payroll is becoming increasingly time consuming and complicated. Other employee related ‘stuff’ you might want to think about is contracts of employment and Employers Liability insurance.

7. Accounting Software

No-one goes into business to produce accounts. However, there is a legal requirement and it’s kind of useful to know how your business is going, how much cash you have and if you’re going to be able to pay your bills next month and the month after. With this in mind, I’m a big fan of Xero – online accounting software. It’s all online and very easy to use. Give it a go, it will make your life so much easier.

Good luck! If you have any questions about finance for your start up, or anything else, please get in touch through the comments below.