Running your own business can be an immensely rewarding experience. Every year, approximately 400,000 new businesses start up in the UK. Decisions taken in the early years can be the most difficult as well as the most important, particularly for first-time entrepreneurs and those with no previous business knowledge or experience.
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When you have an idea for a new product or service, the impulse is to start sharing it with the world as soon as possible. However, the fact is that in the UK one in three new businesses ceases to trade within three years and, after ten years, only one in five is still in business.
Preparation is the key. This particularly applies to researching the market and testing your product or service. Getting the pricing right is a significant factor. Research shows that being under-capitalised is the most common cause of business failure. So it pays to get a business plan together with robust cashflow and profit forecasts.
An ICAEW Chartered Accountant can offer advice that will enable you to confidently select the most appropriate format for your business. There are four main options available to you:
Setting up in business on your own gives you complete control and fewer administrative burdens, but has implications for tax and raising finance. Also, you have unlimited liability and could therefore risk personal loss if something were to go seriously wrong.
If two or more people run a business together as partners, they share profits, losses and unlimited legal liability. It is a common – and often very successful – formula, but it is essential to define the rights and responsibilities of partners and to set them out in a partnership deed. This complex process requires special accountancy and legal skills.
A limited company is a legal entity separate from its owners. Ownership can be changed or extra capital raised through the selling of shares, without necessarily affecting the management of the company. However, the number of statutes and regulations involved can substantially add to the time and money spent on administration, so the costs and benefits of this approach need careful analysis.
Unlike in a standard partnership, the liability of the partners in a LLP is normally limited to the amount of their partnership commitments. Requirements regarding accounts, audit, returns to Companies House, winding up and insolvency all follow normal company law rules, but taxation follows the rules for partnerships.
An ICAEW Chartered Accountant has the professional experience to examine your business ideas and evaluate profit potential. This will help you to set realistic financial targets, establish budgets, plan ahead and compare forecast figures with actual results. Whether you are planning to secure bank finance, raise equity finance or monitoring performance against your own benchmarks, a business plan is a valuable tool.
Your business plan must be exciting but credible, with clearly identified customer benefits and evidence of growth and future prospects. An executive summary is vital, clearly stating your financial objectives, the business idea and profit forecasts.
For a bank this may be all that is required but if you are seeking outside investment, in addition to the executive summary, you will need the following:
Your business plan is a crucial pillar of future success and the professional advice of an ICAEW Chartered Accountant, who is equipped to question, analyse and offer insight, can prove invaluable.
If you are seeking a bank overdraft or loan or trying to attract new investors, you will need to present a convincing picture of your business’s financial condition and future prospects. An ICAEW Chartered Accountant will know exactly what information is required and how it should be presented. This will give you the best chance of success.
Popular methods of raising finance include:
The advice of an ICAEW Chartered Accountant can help you to assess the possibilities, choose an appropriate source of finance and prepare a convincing proposal.
When looking for business premises, it pays to be practical and flexible. Take advice from an ICAEW Chartered Accountant with sound judgment and relevant experience, and bear these key considerations in mind: