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The essentials to consider when starting a company in England and Wales

Starting a company can present both opportunities and challenges. The excitement of bringing your vision to life is often tempered by the daunting task of planning every detail meticulously. However, proper preparation is crucial when starting a business. From securing funding (if needed) to managing finances and ensuring compliance, a well-thought-out plan can make the difference between success and failure. This blog will guide you through the essential finance-related steps for a successful start to your entrepreneurial journey.


1 – Business Plan and Financial Projections

A solid business plan is the important blueprint for any successful company. It outlines your business idea, market analysis, organisational structure, product or service offering, and most importantly, your financial projections. These projections should include:

  • Revenue forecasts: Estimations of how much money you expect to bring in from sales.
  • Expense forecasts: Detailed lists of both fixed and variable costs, including rent, utilities, salaries, and any raw materials or stock.
  • Cash flow projections: Predictions of when money will flow in and out of your business, to make sure that there is sufficient cash in the business to pay your bills and any employees.
  • Profit and loss statements: Monthly or quarterly predictions of your profit margins.

These financial documents are crucial not only for internal planning but also for securing funding from investors or banks.


2 – Funding Your Business

Once you have set your financial projections, the next step is to secure funding, if necessary. In the UK there are several options available:

  • Self-funding: Using personal savings is a common way to start, but it can be risky. Ensure you have enough to cover personal living expenses and unforeseen business costs.
  • Bank loans: Traditional bank loans are a popular choice. This is when a comprehensive business plan and financial forecasts will be need be available to present to the bank.
  • Government grants and loans: The UK government offers various grants and loans for startups, especially those focusing on innovation, technology, and sustainability.
  • Angel investors and venture capital: These investors provide capital in exchange for equity in your company. They often bring with them valuable expertise and networks.


3 – Setting Up a Business Bank Account

Opening a separate business bank account is crucial for managing your finances and maintaining a clear record of all business transactions. This separation helps in tracking expenses, simplifying tax filings, and building a credit profile for your company.


4 – Accounting and Bookkeeping

Efficient accounting and bookkeeping are vital for monitoring the financial health of your business. There are a number of ways to approach these important elements of running a company, including:

  • Hiring an accountant: An experienced accountant can help you navigate complex tax laws, manage payroll, and ensure compliance with financial regulations.
  • Bookkeeping software: Tools like Kashflow and Xero can automate many bookkeeping tasks, making it easier to keep accurate records and generate financial reports.
  • DIY bookkeeping: For very small businesses, managing books yourself might be feasible, but it’s important to have a basic understanding of accounting principles.


5 – Tax Obligations

Understanding your tax obligations is essential to avoid penalties and manage your finances effectively. In England and Wales, key taxes include:

  • Corporation tax: Companies must pay corporation tax on their profits. As of 2024, the rate is 25% for businesses with profits over £250,000 and 19% for profits below £50,000, with marginal relief for profits between these thresholds.
  • Value Added Tax (VAT): If your business has a taxable turnover above £90,000, you must register for VAT and charge it on your goods or services.
  • Income tax and National Insurance: If you’re a sole trader or in a partnership, you’ll need to pay income tax and National Insurance on your earnings.
  • Payroll taxes: If you have employees, you need to handle PAYE (Pay As You Earn) and National Insurance contributions on their behalf.


6 – Financial Compliance and Reporting

Maintaining compliance with financial regulations is critical. This includes:

  • Annual accounts and confirmation statement: Limited companies must file annual accounts and a confirmation statement with Companies House.
  • HMRC filings: Ensure timely submission of corporation tax returns, VAT returns, and payroll reports to HMRC.
  • Audit requirements: While small companies are generally exempt from audits, medium and large companies must undergo regular audits to verify the accuracy of their financial statements.


7 – Managing Cash Flow

Cash flow management is crucial for the survival and growth of your business. Effective strategies include:

  • Invoicing promptly: Ensure you invoice customers as soon as the goods or services are delivered and that payment terms are manageable for you (for example you might be better offering payment terms of 15 days rather than 30 days to assist with management of cashflow.
  • Negotiating payment terms: Try to negotiate favourable payment terms with any suppliers to improve your cash flow.
  • Monitoring cash flow: Regularly review your cash flow statements to anticipate and mitigate potential shortfalls.
  • Building a cash reserve: Aim to have a cash reserve to cover at least three to six months of operating expenses.


8 – Insurance

Having the right insurance cover protects your business from unexpected financial losses. Essential types of insurance include:

  • Public liability insurance: This covers claims made by the public for accidents or injuries that occur on your business premises.
  • Employer’s liability insurance: This is compulsory if you have employees, covering claims made by employees for work-related injuries or illnesses.
  • Professional indemnity insurance: Protects against claims of professional negligence or errors in services provided.


Conclusion

Proper financial planning is crucial for long-term success, and understanding the essentials we have outlined here could make the journey both smoother and more rewarding. If you’re planning to start a company or need any guidance on scaling up a business, we’re happy to help. Contact us for an informal discussion on how we can support you with all or any of the above. Click here to contact us