When Starting your business, there are many questions. One of the first is the best type of business to form. We will assume you have chosen a Limited Company if you are reading this blog…
So where do you start? Here are some of the common queries or questions that we encounter with Startups.
Should I set up a separate Business Bank Account?
Yes. The Limited Company is a separate legal entity to you as an individual.
While it may be ok to initially use a personal bank account, it can become very difficult to distinguish personal and business transactions to accurately complete the Limited Company Accounts.
If your Bank finds that you use a personal bank account, they may close it down for breach of your terms and conditions.
Can I use my personal bank account to buy things for the business?
As above, we would recommend setting up a separate Business Bank Account for day to day use. You are able to make purchases personally for the business. To ensure that these are recorded in the Business Accounts, you should record in the business books that there is an expense owed to you as an individual. This is best done by setting up an expense claim from the business to yourself to repay an expense paid personally when there are funds available to do so.
Can I buy things for the business on my personal credit card?
You are able to make purchases on a personal credit card for the business. To ensure that these expenses are recorded in the Business Accounts, you should record in the business books that there is an expense owed back to you as an individual. This is best done by setting up an expense claim from the business to yourself to repay an expense paid personally when there are funds available to do so.
What happens if I put money into the Business?
If you put money into the Business, it should be recorded to your “Director Loan Account”. Your Director Loan Account (DLA) records all money paid into the Business that is owed back to you. It also records any money taken out of the business that you have put in – Or money the Business has loaned to you and is owed back. There are penalties for overdrawing the Director Loan Account as explained later.
Can I just take money out of the Business?
No. The money held by the business in a Business Bank Account does not belong to you. It belongs to the Business which is a separate legal entity.
We explore later how to take money out of the business. You cannot just take it..
Who should I bank with?
Natwest is a great option for Startups. It usually offers Startups a free banking period in addition to access to Cloud Accounting Software, FreeAgent for free.
Are Loans available for Startups?
It may be possible to obtain a Startup Loan for your venture, however many of these include a personal guarantee against personal assets – Such as your car or house. This means that if you are unable to repay the loan, the lender may try to force a sale of these to repay the funds loaned.
What grants are available?
There may be grants available depending on your region and sector. Check out the Government Support checker and your local Growth Hub.
https://www.gov.uk/business-finance-support
https://www.d2n2growthhub.co.uk/
Can I get mentoring or skills training?
Your local Growth Hub or Local Enterprise Partnership may offer mentoring or skills training. Ascentant also offer mentoring support to Startups.
https://www.d2n2growthhub.co.uk/events/
What other support is available?
Local Universities will usually have a Business Department that outreach and work with local Businesses. This includes, training, upskilling, Skill Transfer Programmes and offering Interns the opportunity to assist businesses.
Attending networking groups and peer support groups is also a great way to meet other Businesses, exchange knowledge and build relationships with other Businesses.
https://www.derby.ac.uk/business-services/funding/
https://www.eventbrite.co.uk/l/small-business/
https://www.meetup.com/cities/gb/d3/derby/career-business/
https://www.kukuconnect.co.uk/
https://bnimidlands.co.uk/en-GB/index
Do I need a Business Plan?
While it is not essential to have a Business Plan, if you are looking to grow your Business, apply for finance or generally have an idea of where you are going, a Business Plan is going to be needed.
A good Business Plan will include your aims, goals and how you will achieve them. Who are your competitors? What are your USPs?
It will also include forecasts such as cashflow forecasts or management accounts forecasting.
Ascentant can assist in producing Business Plans or forecasts.
Record Keeping
While we recognise that money can be tight when starting a Business, we would always recommend using Cloud Bookkeeping software to maintain your records.
Cloud software usually has a bank feed that ensures that you post your transactions that go through your bank statement to your Accounts in real time. This allows you to run a real time set of reports such as a Profit & Loss Report.
Cloud software also allows you to invoice customers and keep track of paid invoices and outstanding invoices to chase.
Cloud software will also usually be used to complete your VAT return if VAT registered.
Separately you should maintain and keep copies of:
- Any loans or finance agreements
- Copies of receipts or supplier invoices
- A record of any assets bought or sold
- Any cash held
Pre Launch Expenses
As part of the Accounts production for the first year Accounts, we need a record of any items paid for you personally that were introduced or used by the Business.
This could include Company formation fees or other costs incurred just before the business was set up, but relating to the business. Or costs paid personally (as above) which have not been recorded in the business books.
A record of these should be collated and provided to us to include in the Accounts.
Once you’ve sold your business and have received the funds from the sale, you’re then faced with a big question: what happens next?
After guiding the helm of your company, it will be tough to let go. But if the circumstances are right, there’s no reason why exiting the business should be a sad occasion. You’ve built a stable business and personal legacy. You’ve employed a team of talented people and helped them drive their careers. And you’ve brought your products and/or services to a satisfied and loyal customer base.
So, how will you now focus your time and effort? Let’s look at your options…
Retire and live out the entrepreneur’s dream
After many years of hard work, worries and stress, the thought of a business-free lifestyle may well be appealing. But retirement isn’t for everyone. If you have thrived on the pressure, challenges and excitement of being the captain of your business ship, retiring may seem like a step away from the action.
On the flipside, the allure of a more relaxed lifestyle may be strong. With the proceeds from your sale, you should be in a position to make you, your family and those around you very comfortable. It may be that the entrepreneur’s dream of building a business, selling up and retiring to a hot climate is your idea of perfection.
Stay involved in the business
Even though you don’t own the business anymore, it doesn’t mean you have to step away completely from the company. You could remain involved in the business in some capacity, allowing you to ‘keep your hand in’ and support the future course of the business.
For example, you could become:
- A joint partner in the business – you could sell a part share in the business and work as a joint partner with your new investor. This allows you to free up some capital, while maintaining an element of control and influence.
- An external adviser or consultant – you could advise the new owner and their board as an outside adviser. After all, who knows this business better than you? Becoming a consultant could well be an astute move and keeps you in the loop with the future path of the business – while charging out a consultancy fee as an added benefit.
- A non-executive director (NED) – you could join the board as a NED and use your personal experience to help guide and support the new owner and their board. If that’s the route you choose, it’s a good idea to retain some shares in the business, so you have a vested interest in the company’s performance and your own share value.
- An informal adviser to your family – if you’re handing the business down to the next generation of your family, they will almost certainly want your advice. You’ve been through the ups and downs of setting up the business, so you’re in the best position to give your family the guidance and tips they need to run a smooth operation.
Set up a new business
With so much experience behind you, it could be that you’re itching to start the whole business cycle again. If you’ve got the ideas, the capital and the motivation to start another new business, this can be a new and rewarding challenge to get your teeth into.
First time around, you’ll have been a little green and less aware of the many pitfalls of founding a new business. You’re now better prepared and more knowledgeable about what’s required from a founder and business leader. We learn plenty from our mistakes, so you’re in a great position to return to the business cycle again with a new idea.
As with any new businesses venture:
- Make sure you have a detailed breakdown of your business idea
- Write an in-depth business plan that maps out your journey
- Ensure you have the funding to get this idea off the ground
- Be prepared for a period of hard work and lower income before the company takes off.
Do your bit for charity and your community
We all have interests and causes that are close to our heart, so supporting charities and community projects in these areas is a great way to use your money for long-term good.
Donating money to your chosen charity or social enterprise is also a triple whammy:
- You get to provide funding to causes that are close to your heart
- You can be philanthropic and help people who are in challenging situations
- You get the positive impact of tax breaks for donating to charity.
You also have the option of putting your own time into working with these charitable causes. You can use your expertise and experience to guide them, help with fundraising or provide hands-on support at events, community projects or lobbying the Government for greater support.
The end of the road, or a new chapter?
Once the business is sold and you close your office door for the last time, you take a step into the unknown. But with so many varied and valuable options to choose from, your life post-exit need never be boring or predictable.
The potential is there for an exciting new venture, or the pleasure of relaxing in the sunshine by the pool. It’s up to you to define the next chapter in your life and your business career.
If you’re thinking about exiting your business, please do get in touch. We’ll help you plan your exit strategy, add value pre-sale and choose the best options for your personal future.
Talk to us about your next step.
Ascentant Accountancy are based in Derby (01332 981920, info@ascentant.co.uk) and Ripley, Derbyshire (01773 424009, Ripley@ascentant.co.uk), call us to see how we can assist.
