Anyone considering starting a small business in the UK is certain to be met with these sobering statistics at some point: around 20% of all small businesses fail within the first year, and 60% will fail within three years.
Now, that's an alarming figure, and enough to dissuade many budding entrepreneurs and would-be business owners!
At Prescient Accounting, rather than using this depressing information as a warning, we believe it can inspire our clients to be better prepared and form a coherent, detailed business plan. By learning from the mistakes of others, and with common-sense, practical business advice, we can help you establish a firm foundation for a successful business.
Here's how we can help you...
Let us know what you need from your accountants, we’re happy to help.
We believe that the role of the accountant is much more than dealing with pure compliance. That’s why we’re offering a free video or telephone call with one of our team of chartered accountants, to give you straightforward and open dialogue about your tax and accounting affairs.
If you want to start a new business, your first step should be deciding the best business structure. This is the most important aspect of starting a business, as it sets your personal liability, the amount of tax you pay, your administrative responsibilities, and the direction your business will take.
Below is a list of the most common business structures currently used in the UK. We'll discuss these with you to determine which is the best fit for your future growth.
As honesty and integrity are central to the Prescient Accounting ethos, we provide a realistic overview of these structures to help find the best fit:
This is the simplest and cheapest option to set up, and you keep all profits after tax. You are self-employed, with complete control and a lot of flexibility, as it's your own business!
There is a greater degree of privacy, as your personal information won't be in the public record.
Accounting fees are generally lower as the tax and accounting procedures are simpler, and there's less paperwork.
Sole traders have unlimited liability, meaning they're personally responsible for all business debts. The reporting requirements are simpler, but they still need to file Self-Assessment tax returns. This option also may lack credibility when dealing with larger companies or seeking funding.
In relation to tax, sole traders pay between 20-45% on their taxable income.
This is a fairly informal set-up, with fewer legal obligations. With a partnership, profits and workload are shared between one or more people. Income can be split, which can reduce the tax burden, and there's generally more capital to invest. Start-up costs are relatively low, and each partner's business affairs are private.
You also have more borrowing capability, and the legal structure can be changed fairly easily if necessary.
The accounting process is less complex and you won't need to submit a Corporation Tax return, although a Partnership Tax return is necessary, and each partner must file a Self-Assessment tax return.
There is unlimited liability for all partners for business debts, and the business does not have a separate legal personality, so each partner will share responsibility for any debt.
This arrangement also requires a partnership agreement outlining profit-sharing, decision-making, and dispute resolution.
It also can give the appearance of 'impermanence', deterring certain investors and lenders, as the financial history can't be independently checked with Companies House.
With limited liability, the personal assets of owners, directors, shareholders or guarantors are protected if the company goes into debt (known as a corporate veil). This arrangement creates a separate legal entity, which can build credibility and attract investment.
Limited companies are generally held in higher regard by potential investors, clients and professional bodies, making securing contracts and business agreements easier.
The tax rate for limited companies is between 19% and 25%, offering excellent opportunities for tactical tax planning. For example, you can defer your withdrawal of profits until a lower tax rate is available or reinvest surplus cash into the business rather than take it as salary, thus pushing up your tax liability.
You can also take part of your salary as a dividend and reduce your tax and/or National Insurance Contributions.
A limited company is more complex and expensive to set up and maintain (it requires company filings and annual accounts).
They must also submit a Corporation Tax return and annual accounts, which can be tedious.
Registering with Companies House means your personal and business information will be on public record. Any changes to the business must be reported to Companies House.
The process of withdrawing money is more complex, and it is wise to engage an accountant to handle your tax affairs and annual accounts and reporting.
The legal issues tend to be more involved, and accurate records of all business dealings are necessary.
An LLP protects your personal assets as the partnership is considered a separate legal entity.
There's a greater degree of flexibility, as the direction of the business and the profit distribution is determined by written agreement between the members. You can also have different levels of membership, and even appoint companies as members (if a limited company is appointed, it must have at least one director).
Your business name is also protected by law.
This option is a more complex setup than a standard partnership and may not be suitable for all businesses.
All income is 'personal income' and will be taxed at the appropriate rate. It can't be deferred and held over to another tax year, as with a limited company.
Public disclosure may be an issue for some people, as your personal details (including salary) will be available on request.
An LLP must have at least two members, and if one decides to leave the partnership will need to be dissolved.
When we discuss your company structure with you, we'll ask you to consider all of these key factors before making a decision.
Effectively, we'll steer you towards the best option by focussing on the following four points:
Consulting with one of our expert business startup accountants will help you assess your circumstances and choose the most suitable structure for your UK startup. They can also advise on tax implications and ensure you comply with all legal and regulatory requirements.
This is the bedrock of any successful startup, and we concentrate on several key factors to boost your chances of thriving rather than just surviving.
Here are the main points of focus:
A well-defined business plan with realistic financial projections is essential to secure funding from investors, banks, or grant-giving bodies. It demonstrates the viability of your business model, showcasing expected revenue streams, costs, and profitability.
Financial projections become benchmarks for measuring progress toward initial goals. By regularly monitoring actual performance compared to projections, you can identify areas that need adjustment and adapt your strategy accordingly.
Maintaining accurate and up-to-date financial records is crucial for informed decision-making. A robust bookkeeping system ensures you can clearly track income, expenses, and profitability.
Proper record-keeping is essential to comply with HMRC regulations and submit accurate tax returns. Transparent financial records also demonstrate responsible business practices to potential investors and partners.
Cash flow is the lifeblood of any business. It refers to the movement of money coming in (revenue) and going out (expenses). Effective cash flow management ensures sufficient funds to cover operational costs, pay staff, and meet financial obligations on time.
Good cash flow management practices involve forecasting your future cash flow needs. This allows you to plan for potential shortfalls, secure financing if needed, and avoid cash flow disruptions that could hinder your growth.
Understanding your tax obligations, including registering for VAT and corporation tax and registering for Self-Assessment if you're a sole trader, is essential.
Complying with all legal requirements related to employment, payroll, and data protection is key to ensuring that HMRC is satisfied. However, there is always a chance that HMRC will launch an investigation into your financial affairs – this is often a random decision and is not usually based on any suggestions of fraudulent activity.
Prescient Accounting is familiar with the protocol surrounding compliance and HMRC investigations, and we will guide you through the process.
We explore different financing options like bank loans, grants, and angel investors.
Our team will also look into any relevant government grants or support programs available for startups in your industry or location.
Our service for startups includes many other aspects, including:
By seeking advice from Prescient Accounting from the outset, you can ensure your business is set up correctly from a financial and legal standpoint, allowing you to focus on growing your venture.
While this has more to do with your marketing plan rather than accounting, our accountants have much valuable advice and guidance to offer on the subject, such as:
We believe that by understanding the importance of brand image and seeking guidance, a new UK business can build a strong foundation for attracting customers, fostering loyalty, and achieving sustainable growth.
It's wise to protect your new business from competitors or those who would seek to copy or steal your ideas.
Brand names, logos, slogans, and anything that differentiates your business from another should be protected by registering them with the UKIPO (UK Intellectual Property Office).
You can also register unique business ideas (such as a product configuration or shape) with UKIPO, valid for ten years. You could go further by applying for a patent, which offers protection for up to twenty years.
Opening the right bank account is not a decision to take lightly! There are many options available, but not all of the gimmicks and special offers to attract new businesses are what they seem.
Our accountants will take you through a step-by-step guide to selecting the best bank account for your circumstances:
By following these steps, a startup in the UK can make an informed decision about choosing the right bank account to cater to its specific business requirements and help manage its finances effectively.
In November 2023, around 30% of all business transactions were performed online, and that trend will only increase in future years.
It's very clear that anyone planning to start a business today must have a strong online presence to succeed.
All successful small businesses these days have excellent websites with reputable web hosting companies, which you need to embrace to attract potential customers and establish your brand presence.
Our specialists will go through a to-do list that looks something like this, to guide you in your online journey:
If you're in the first stages of setting up a business, or you have a brilliant business idea you want to run by us, get in touch with Prescient Accounting right away!
With a coherent business plan and our expert guidance and advice, you can avoid the pitfalls many small businesses encounter in the early days.
We'll help you to turn a great idea into a successful business.
Choosing the right legal structure for your startup depends on factors such as liability, taxation, and administrative burden. Sole trader, partnership, and limited company are common options in the UK, each with its own advantages and considerations.
Creating a business plan that attracts investors involves outlining your business idea, market analysis, financial projections, and the unique value proposition. Ensure it's clear, concise, and demonstrates potential for growth and profitability.
Successfully launching a startup in the UK requires thorough market research, a solid business plan, understanding legal obligations, securing funding, and implementing a strong marketing strategy to build a customer base.
Marketing your new business effectively on a budget can be achieved through digital marketing tactics such as social media engagement, content marketing, and SEO. These strategies can attract and retain customers without a hefty investment.
Avoiding common financial mistakes made by startups includes planning for cash flow issues, not underestimating operational costs, and avoiding premature scaling. Keeping a close eye on finances and budgeting wisely are key to financial stability.
Funding options for UK startups vary from self-funding, friends and family, to government grants, angel investors, and venture capital. Choosing the right funding source depends on your business needs, goals, and the stage of development.
We believe that the role of the accountant is much more than dealing with pure compliance. That’s why we’re offering a free video or telephone call with one of our team of chartered accountants, to give you straightforward and open dialogue about your tax and accounting affairs.
We are chartered accountants and tax advisers, working with individuals and small and medium-sized businesses. We're a full-service firm, helping people and businesses with all of their tax and accounting needs. About us
