The opportunity to become your own boss is a draw that appeals to millions of people in the UK. Entrepreneurship is encouraged and anyone can set up their own business either as a sole-trader or limited company.
Of course, raising capital is the biggest drawback. Despite many borrowing funds, others won’t be willing to risk their own collateral or financial security if things go wrong. For those that do, efficient money management is of paramount importance so the business can flourish.
If you’re at this stage and looking to set up a new company, we’ve listed three financial measures to take into consideration.
The way we raise capital has evolved over the years. Although some banks and other high-street lenders still provide assistance, loans are difficult to obtain without a decent trading history and personal security.
Instead, the government-backed Start-Up Loans Company is the first port of call for many budding entrepreneurs. Here, you’re granted a loan up to £25,000 with a fixed interest rate of 6% over a one to five year repayment period.
If you’re not successful here, further methods include internet crowdfunding platforms, venture capitalists or angel investors – a group of Dragons Den-type sponsors. Of course, you could also try and raise the funds yourself or seek help from friends and family. Whatever the scenario, prudent financial decisions remain imperative, especially if strict repayment terms are in place.
Your chosen business structure shouldn’t be neglected as a financial consideration. It will have key implications down the line, specifically in relation to tax. We’d recommend seeking professional advice if you’re unsure of the best business model for your company.
As a sole trader, you are essentially the business yourself. This means that, in the event of debt or a legal dispute, you have personal liability. However, there’s also less red tape to contend with, and you’ll keep all profits.
On the other hand, if your earnings start to rise or you need to employ staff, becoming a limited company is perhaps the best option. It creates a higher degree of professionalism and helps you become more tax efficient also.
Whatever your business model, the principal of acquiring a product or service, creating a niche in the market and finding a client base remains the same. Evaluate each stage of growth, pinpoint areas of expenditure and tighten up excess spending wherever possible. Maintaining a detailed cash flow forecast will help with this.
Here are some further saving methods:
- Rent or lease goods rather than buying outright
- Advertise for free on social media rather than using expensive ad campaigns
- Use freelance workers to avoid paying full-time staff
- Shop around for deals, especially relating to utility bills or internet providers
- Look out for government grants that can boost immediate cash flow
Overall, there’s a whole host of financial considerations when starting your own business. This is especially the case in an ever-changing digital world with new marketing trends to adhere to. As every new start-up is different, professional accountancy firms who provide bespoke advice are needed. This is what we can provide here at DLR, so don’t be afraid to get in touch today.
If you are setting up your own business, why not check out our advice on what to look for in your accountant?