Key considerations when starting a business

The business plan is the key to success. If you need finance, no bank manager will lend you money without a sensible plan.

Your plan should provide a thorough examination of the way in which the business will commence and develop. It should describe the business, product or service, market, mode of operation, capital requirements and projected financial results.

Take a look at UMi's guide to writing a great business plan and business plan template.

There are three common types of business structure:

• Sole trader
  This is the simplest form of business since it can be established without legal formality. However, the business of a sole trader is not distinguished from the proprietor’s personal affairs.

• Partnership
  A partnership is similar in nature to a sole trader but because more people are involved, it is advisable to draw up a written agreement and for all partners to be aware of the terms of the partnership. Again, the business and personal affairs of the partners are not legally separate. A further possibility is to use what is known as a Limited Liability Partnership (LLP).

• Limited company (Ltd) or private limited company (Ltd)
  The business affairs are separate from the personal affairs of the owners, but there are legal regulations to comply with.

The appropriate structure will depend on a range of factors, including consideration of taxation implications, the legal entity, ownership and liability.

There are minimum requirements for the contents of business stationery, both paper and electronic, which will depend on the type of business structure.

You should include the following on your business stationery:

• Business name
• Business address
• Telephone landline numbers
• Fax number (if you have one)
• Email address
• Website address (if applicable)
• You could also include mobile phone numbers, especially on business cards

Full guidance can be found on the Business Companion website. 

Legal requirements for different types of businesses:

If you're a sole trader operating under your own name, you should include your name and address on all business stationery. However, if you choose something other than your own name for the business, you must include your own name and the business address on all business letters, orders and receipts.

Partnerships must state on letters, orders, invoices and receipts:

The names of all partners (or alternatively indicate where a List of partners may be inspected).
The address of the principal office.

Limited companies must show on letters and order forms (paper and electronic versions):

• The name of the company
• The place of registration
• The company registration number
• The address of the registered office
• The address of its place of business (if different)

If the company is being wound up this fact must also be stated. There is no need to list the names of the company directors, but if you choose to include them, you must list the names of all directors.

Limited companies' invoices must show at least the company name. In the case of a limited company that is exempt from using the word 'limited' in its name, it must state the fact that it is a limited company.

Additional information to have printed on invoices:

If you are registered for VAT, your invoices must state your VAT registration number.

You can include your banking details on invoices to help with quicker payments. List the account name, number and the sort code. Also print your payment terms, and any other relevant terms and conditions.

All businesses need to keep records. They can be maintained by hand or may be computerised but should contain details of payments, receipts, credit purchases and sales, assets and liabilities. If you are considering purchasing computer software to maintain your records, obtain professional advice.

The books and records are used to produce the accounts. If the records are well kept it will be easier to put together the accounts.

Accounts must be prepared for HMRC and if a company is formed there are strict legal requirements as to their layout. The accounts and company tax return must be submitted electronically to HMRC in a specific format (iXBRL).

A company and an LLP may need to have an audit and will need to make the accounts publicly available by filing them at Companies House within a strict time limit.

When starting in business, taxation aspects must be considered.

• Taxation on profits
  The type and rate of taxation will depend on the form of business structure. However, the taxable profit will normally differ from the profit shown in the accounts due to certain expenses which are not allowed for tax purposes and the timing of some tax allowances. Payment of corporation tax must be made online.

• National Insurance Contributions (NICs)
  The rates of NICs are generally lower for a sole trader or partnership than for a director of a company but the entitlements can also differ. In a company, it may be possible to avoid NICs by paying dividends rather than salary.

• Value Added Tax (VAT)
  Correctly accounting for VAT is an essential part of any business and neglect may result in a significant loss.

When starting a business, you should consider the need to register for VAT. If the value of your taxable sales or services exceeds the registration limit you will be obliged to register. If you are VAT registered, you will also need to consider appropriate software to ensure that you comply with the Making Tax Digital requirements.

For the business to get off the ground or to enable expansion, it may be necessary to employ staff.

It is the employer’s responsibility to advise HMRC of the wages due to employees and to deduct income tax and national insurance and to account for student loan deductions under PAYE. The deductions must then be paid over to HMRC. Payroll records should be carefully maintained.

Under Real Time Information an employer must advise HMRC of wages and deductions ‘on or before’ the time they are paid over to the employee.

Employers are also required to automatically enrol all eligible employees in a pension scheme and to make contributions to that scheme on their behalf. Enrolment may be either into an occupational pension scheme or the National Employment Savings Trust (NEST).

You will also need to be familiar with employment law.

There are many pitfalls to be avoided in choosing a property. Consideration should be given to the following:

• suitability for the purpose
• compliance with legal regulations
• local by-laws
• physical restrictions such as access.

Comprehensive insurance for business motor vehicles and employer’s liability insurance are a legal requirement. Other types of insurance such as public liability, consequential loss, business assets, Keyman and bad debts should be considered.

For further reading check out UMi's article on what insurance you need.