Innovative Numbers-Creating resilience in your business
9 Steps to Building Your Successful Business
In my last blogs, I covered the 4 initial steps you need to take to build your successful business. These mainly covered market research and your product or service design.
So on to…
What Business Entity should I use?
This is a question I am asked over ad over again and there is no clear answer. It is more about making you aware of the options, so you can make an informed decision.
In most cases, new business owners deliberate over whether to start as a Sole Trader or incorporate into a Limited Company.
I am only going to give a brief summary here because otherwise, I would send you to sleep with all the complex details, tax, N.I. rates etc.
The best move for is to hire an accountant who can help you with this. A good, proactive accountant really is an investment, not a cost and can guide you through this process.
As a sole trader, you and your business are one. If it prospers, you have immediate access to the cash it generates and you won’t pay tax on any profits up to £11,850. After that, differing rates of tax need to be paid.
You will have to start paying Class 2 and Class 4 National Insurance once you get into profit but remember, this is profit, not turnover; the cash your business is left with after you pay your expenses.
If the business fails and you end up owing money to creditors, you are liable because the owner and the business are one.
You (or your accountant) will need to submit an annual Self Assessment and, (apart from a few exceptions) you can trade under any name you like.
A Limited Company is considered to be a separate entity; so imagine you have a friend called John (or Jane) sitting next to you. I’ll call him John but please, if you prefer Jane that’s fine with me.
John pays you to work for him but you direct everything he does. All the money you make from selling your products or services go to John. John must pay tax on all profit that you make for him. And John will pay for everything you need to keep him going.
John is a little bit more controlled about how he gives you money. He will pay you as much as you want and he will also pay you a dividend from the profits you make for him.
John is this way because he takes the can if your company crashes; you only have a limited liability, limited to the share value you hold.
A corporation Tax return is a little more of a complicated beast than a self assessment, so you definitely need an accountant to deal with John and keep him happy.
However, a lot of companies, banks, and lenders will be more comfortable dealing with John than you, so in some cases it is a good idea to bring john (or Jane) into your life.
Of course, there are also Partnerships, LLC’s and Co-operative entities that can be created as well and all have their place. Again, your accountant can talk this over with you.
What? I’ve just got here! I’m not looking for any door yet!!
You must always start with the end in mind. Forgive me but I’m now going to put on my Project Manager’s hat.
A business is ultimately a project. It will have an end. That end could be because:
You want to sell the business at some point;
You want to create and then leave the business to your children;
The technology your businesses utilises only has a finite life;
The demand for your products or services will tail off;
You plan to retire and take a passive income from your business.
I’m sure there are many others but you get the picture. You need to start this project with that end point in mind, even if that point is to build it to a certain size so you can decide how you will proceed when you reached that point. However, this stage is critical.
Once we can see what we want at the end, then planning to get there becomes far more straightforward and easier to focus on. Most people need help at this stage and this is where a good Business Coach can really help you. Again, that is an investment, not a cost.
I would love to hear your comments on these two steps, especially step 6.
In the meantime, have a great weekend and watch out for the next blog.