5 common mistakes by new small business owners

For years, startups and small business owners have come to us to help them manage their accounts.

Over that time, we’ve learned a lot about the issues that catch people out.

In this post, we’ll look at the 5 most common problems we see day-to-day, and how your small business can avoid them:

  1. Not preparing or planning
  2. Not paying attention to paperwork
  3. Not considering the business structure
  4. Not separating business from personal finances
  5. Not asking for help

Common mistake 1: not preparing or planning

Before you start trading, it’s important to get a solid business plan in place. This starts with asking yourself some basic questions about your business:

  • Does anyone need your product or service offering?
  • Is your business likely to be sustainable?
  • What is the value of your product or service?
  • How much will others be willing to pay for it?
  • How much will it cost for you to deliver the product or service?
  • What investment might be needed?
  • Will you need to borrow to get started?
  • How will you fund your business?
  • Will you need external help to deliver the product or service?
  • How will you market your business (via a website, social media or other routes)?

We often find that many new startups haven’t thought about these questions in detail. But the better prepared they are, the more likely they are to develop a sustainable, profitable business.

When we talk to our clients, we get them thinking about these and other questions to help give them the best chance to succeed.


Common mistake 2: not paying attention to paperwork

We know that managing your records isn’t the reason you got into business. That’s why there are people like us in the world – to help with the boring tasks while you get on with the interesting stuff.

But whether you get accountancy help or not, you still need to keep good records.

Business owners often make the common mistake of operating their business by looking at their bank account instead of maintaining proper records.

This can mean missing vital financial milestones such as when income reaches the threshold for mandatory VAT registration. Get this sort of thing wrong and you may be fined.

Keeping the right records means you’ll be best placed to pay the right amount of tax at the end of each year, while sidestepping fines and avoiding unnecessary scrutiny from HMRC.

On top of keeping financial paperwork, don’t forget the documentation that’s directly relevant to your products and services. For example, do you have terms and conditions? Are they up to date and compliant with current legislation (such as GDPR and VAT MOSS)?

There are also other related documents to keep up to date, such as refund policies and warranties.

Consider such issues upfront rather than waiting until after the fact. The last thing you want is a customer complaint to make you realise that you’re missing an essential document or process.

Don’t forget the other paperwork-type considerations, such as organising the right type of insurance and securing the protection of any relevant intellectual property. While we don’t specialise in such matters, we’re always able to make referrals to good service providers who can help.


Common mistake 3: not considering the business structure

It’s common to assume that going into business means being either a sole trader or a limited company. But it’s not quite that simple.

In fact, there are 5 possible structures for any business:

  • Sole Trader
  • Partnership
  • Limited Liability Partnership
  • Limited Company
  • Community Interest Company (social good, not for profit)

Your options depend on whether you’re working solo or in a business with others, but there’s more to it than that.

For example, you need to consider who your customers are. You might need to set up as a limited company in order to work with certain other companies. Consider also who your customers trade with.

Another common mistake in this area happens when new business owners go into business with friends. Have you considered what would happen if your professional or personal relationship were to go wrong? It’s risky to assume that things will never change. They can and they often do, so be prepared.  

To set up your business for success, put clear contracts in place and agree on the constitution of your business entity from the outset.


Common mistake 4: not separating business from personal finances

It’s essential to follow the golden rule for expenses: claim only for the expenses that are wholly, exclusively and necessary during the everyday running of your business.

There can be grey areas for expenses that relate to items that are used for business and non-business purposes. The most common examples are smartphones, tablets and laptops.

We’ve written another article that goes into the topic of expenses. Take a look at Startup expenses: what you can and can’t claim for the details.


Common mistake 5: not asking for help

It’s natural to wear lots of hats when you’re getting a new small business or startup off the ground. But there aren’t any medals for doing everything alone, and this approach can sometimes lead to early burnout.

Often, it’s best to hand the tasks that you’re not an expert in, to someone who could get it done faster, better or cheaper than you could do it yourself.

In the case of accounts, you could start by using cloud accounting software such as QuickBooks or Xero. These tools quickly simplify the task of keeping your financial records in order.

If you want further help with managing your money, an accountant could make a difference. Not only would they make sure you pay only what you owe but they would also help you free up more time to do the higher-value work needed to help your business grow.


Let’s sum up

Those were the 5 most common issues we see startups and small businesses struggle with.

If you need a hand avoiding these and other problems so that you can focus on earning more money in your business, get in touch and let’s have a chat.

What to expect at an intro meeting

What happens when you go to meet an accountant for the first time? How long does it take? Do you have to pay? What sort of preparation do you need to do?

If you’ve never worked with an accountant before, these questions are quite normal.

To set your mind at ease, here’s what to expect when you come in for an intro meeting at MHA Henderson Loggie.

First of all, let’s set the scene about our intro meetings:

  • they’re free of charge and involve no commitment.
  • they usually last 30–60 minutes.
  • we won’t give you the hard sell.
  • you won’t need to sign anything.
  • you will get coffee and a chocolate biscuit.

You don’t need to bring anything with you to the meeting, but if you have a business plan or some accounting records, they might help to speed things up a bit.

We use these intro meetings to find out more about each other. We know a new university graduate looking to start a business will need something different from an experienced company owner looking to wind down a bit.

Finding out more about you means we can understand what you’re really looking for from an accountancy service. That way, we can recommend which of our departments would be best to support you, should you decide to work with us.

The meeting also gives you a chance to try us on for size. If you ever wanted to work with us, you’d need to be sure you like us and that there’s some rapport before you jump in. Our no-strings chat lets you do that without the pressure of having to sign any agreements or contracts.


What about after the meeting?

Once the intro meeting is over, we’ll send you a proposal of what we think would be best for you, based on what you’ve told us. Because we don’t use set packages, the meeting is important in helping us come up with a service tailored to you and your needs.

Sometimes, we might need to get specialist input before we can draw up your proposal. For example, you might have asked some questions that we need to refer to our corporate finance department. In such cases, it might take us a little longer to send over your proposal.

Even at this stage, we don’t ask for any signatures or commitment from you.

You can review your proposal in your own time and then let us know whether you’d like to move forward.

If you accept the proposal, we’ll do a little happy dance (not filmed) and then start the process to get you on board as a new client.

This onboarding is usually quick if you don’t already have an accountant. But we’ll check with the relevant advisers if you do already have an existing accountant, as a professional courtesy.


Let’s sum up

That’s a quick look at what to expect from intro meetings with us. It’s a friendly, no-pressure environment, and a great way to check that we like each other before considering whether to work together.

Get in touch now to arrange an intro meeting. We look forward to welcoming you.


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Why is bookkeeping important for a small business?

Chances are, you’re getting into business to create a useful product or service, to do some good and to make some money. It’s less likely that you’re doing it for the fun of keeping business records and filing tax returns.

The boring side of business means you need to do some bookkeeping. It sounds like an old-fashioned term but it’s an essential activity. (We don’t think it’s boring, but we’re accountants and it’s our job to do this sort of thing all day.)

So, what do we mean by “bookkeeping”?

Bookkeeping means maintaining a record of business income and matching costs incurred in making that income.

Let’s look at some common questions about bookkeeping that we hear from our small business and startup clients.


What records should I keep?

Do you issue receipts or invoices every time you sell a product or provide a service? You ought to! Assuming that you do, you should find it straightforward to keep records for your business income. But what records do you need to keep?

Firstly, all income should be accounted for whenever a business transaction takes place between you and your customers.

It’s often more challenging to remember to log your business expenses – the costs that are incurred in making your business income. Keep all receipts for expenses you intend to claim for and log the mileage rates for your business travel.

Expenses purely related to the business are usually straightforward to claim for, but there are grey areas in cases where expenses have a combined business and personal component (such as electronic devices used at work and at home).

We go into more detail about this in our article Startup expenses: what you can and can’t claim.


Do I need paper records?

No, you can scan copies of any printed materials and keep everything safe in digital form.

From the compliance point of view, paper records are not more important or more valid than their digital equivalents. That’s a win for convenience – and it means you can help to save the trees.


What are the risks of not bookkeeping?

Reliable records mean you won’t have headaches if your accounts are ever inspected or audited. Incomplete or missing records could mean you miss out on being able to claim expenses.

And if your books are inaccurate, that could lead to bigger problems with HMRC, including the possibility of fines. No business wants those hassles, so it’s important to get your books in order.

Good bookkeeping information also provides a useful way of seeing how your business is performing. Accurate records help you understand:

  • how much money is coming into your business.
  • how much money is going out of your business.
  • which areas you’re making money in.
  • which areas you’re losing money in.

Is bookkeeping something anyone can do?

While you don’t need to be a maths whizz to manage your books, that doesn’t mean the process is easy or suited to everyone.

It’s common for small business owners to underestimate the work involved, especially when they’re VAT registered. Bigger businesses may be able to justify paying £25K+ per year to hire someone in-house to handle this work, but many small businesses and startups will save a lot of money by passing the task to an accountant.

If your business income falls below the VAT threshold, we suggest you avoid the admin burden of voluntary registration and wait until your business grows to the point where registration becomes mandatory – a good sign that you’re moving in the right direction!

Whether you’re VAT registered or not, we recommend putting good systems in place to avoid the risk of paying the wrong amount of tax.

Automated products can make life easier, and many of our clients have saved time and hassle by switching to cloud accounting software such as QuickBooks or Xero.


Top tips for bookkeeping

Let’s round off with a few more quick bookkeeping tips:

  • keep your records up to date – set aside time to do the work each week or month and you’ll avoid backlogs and headaches at the end of each financial year.
  • record only valid business incomings, outgoings and expenses – this is the basis of your accounts to submit to Companies House and for corporation tax or personal tax, so you need to get it right (leave the personal expenses out!).
  • monitor where you’re not making a profit – good bookkeeping lets you tackle these problem areas to help you maximise your income.

Let’s sum up

Bookkeeping might not be the most exciting subject (although it is to us – we love it!) but it’s important to get this right if your small business is to succeed.

Follow our tips and if you need an expert hand getting your books and accounts right, drop us a line. This is what we do all day for our small business and startup clients, and we’d be happy to help you, too.

How to manage cash flow in a small business

Whatever your business is and however big or small it is, you need control over your cash flow to make sure you stay afloat and keep moving in the right direction.

Let’s get our terms right: your cash flow relates to the predictions you can make about what your business can spend in the coming months.

We help startups and small businesses to understand and manage their cash flow right. In this post, we share our best tips on how you can do the same.


Make every penny count

It’s the old adage “look after the pennies and the pounds will look after themselves.”

Spending wisely means keeping a close eye on your outgoings and being able to justify every single business expense you make.

All expenses must bring new value to your business or they must represent an essential expense that you can’t avoid.

Remember: treat every penny as a prisoner. If you need help with what counts as a valid business expense, see our article Startup expenses: what you can and can’t claim to find out more.


Check who owes you money

It’s all too easy to generate and send invoices, then to forget about them and move on. But it’s wrong to assume that every invoice will be paid correctly or to the timescale you expect.

Do your checks: see that your invoices are paid properly and at the right times. If you’ve agreed 30 or 60-day terms of payment, your customers should stick to them. So long as both parties agree upfront, keep in mind that you’re allowed to set your own boundaries for payment.

The important thing is to follow up and ensure that what you’ve agreed is what’s actually happening.

This doesn’t have to be a manual chore. Cloud accounting software such as QuickBooks and Xero will show you at a glance who owes you money. Keeping a close eye on things should mean that more of your invoices are paid on time.


Keep your VAT money in a second account

If you’re VAT registered, it can be easy to forget that 20% of the takings that go into your main bank account will need to be paid back during quarterly VAT returns.

To avoid the risk of accidentally spending that money, we recommend creating a second bank account into which you place 20% of all income from your invoices.

That way, when it’s time to submit your VAT return, there’s no stress because you’ll always have funds available to pay the bill.


Set up alerts to check bank balances

Many bank accounts offer free SMS or app alerts to let you know when your balance is above or below a threshold. Take advantage of these so you can be informed of an unexpected drain or surplus on your account.

Checking your bank balance regularly is sensible practice – especially to help you avoid potential fraud – but the true view of your accounting situation should come from your accounting records, which we recommend storing through a cloud accounting package such as QuickBooks or Xero.


Let’s sum up

We hope these tips help you to take control of the cash flow in your small business.

If you need more advice or direct help managing your accounts, get in touch and let’s see how we can put your accounts in order.

How to manage your accounts in a small business

How should you manage your accounts in your startup or small business? It’s a common question that we help clients with all the time.

The good news is that even if you’re not a financial whizz, you can still do plenty to help yourself and your small business. Here are our best tips for managing your accounts.


Use a cloud accounting package

Our most common tip is to get yourself on a cloud accounting package from day one of your business. Accountants like us can help you save money in paying for software such as QuickBooks or Xero. We also help you save time in the setup process – but you can also learn about and set up the software yourself.

But why bother? Check out this short video which explains the pro and cons:

A quick summary of the video:

Pros

  • access your data from anywhere in the world, including on your smartphone.
  • track invoices to make sure you’re paid on time.
  • comply with Making Tax Digital requirements.

Cons

  • input good data – you can’t skip this!
  • cost – around £10–£25 per month.
  • training time and learning curve.

Money’s tight when starting a business, so a common objection to cloud software is  often the cost.

After all, you probably have Excel or other spreadsheet software installed already, and that can seem to be an adequate free option.

But we’d recommend that you treat the modest monthly fee of a cloud accounting package as a wise business investment. It could save you a lot of time and prevent hassles down the line, and remember of course that it’s a valid business expense for you to claim on your tax return.

Cloud accounting software helps you keep your records in a good way, so long as you follow some basic rules.

To get our clients up to speed, our cloud software recommendations come with a free 2-hour training session. Following the guidelines in our training means that those clients keep their end-of-year accounting fees down.


Keep your information fresh and accurate

Recording accurate, up-to-date information in your accounting software might involve connecting your account with a bank feed or supplying a CSV file.

Getting into the habit of good data logging via a cloud accounting package means that your accountant can log in and check that your records are correct at any time.

This can put a stop to potential issues growing out of hand at the end of the year. We’ve found that the sooner such things are nipped in the bud, the easier it is for clients’ accounts to sail through each year.

There’s no set period you should stick to when updating your accounting information, but most of our clients use either a weekly or monthly schedule. The beauty of 24/7 online access to cloud accounting means you can dip in whenever suits you.


Common mistakes when managing your accounts

We see a couple of common mistakes that crop up with our clients, so do your best to get these right:

  • separate your business and personal income – it might be natural to think of income as being “all your money”, but that’s not right when you have a limited company from which you claim a personal salary. Getting this wrong can sometimes mean taking out more than you can afford and inadvertently creating a business loan.
  • log expenses in the right account – it can be easy to attribute expenses to the wrong category. Cloud accounting makes this simple to fix. Because such mistakes are repeated when the software accidentally learns the wrong association, they can be spotted and corrected in one go.

Get the long-term benefits of managing your money well

As well as knowing you’ve got the right data so that there are no end-of-year nightmares, accurate record-keeping in your cloud accounting software means that your accountants can help you with other tasks.

For example, we help our clients with:

  • estimating corporate tax implications.
  • predicting pensions contributions.
  • assessing capital allowance needs.
  • planning dividend payments.

Top tips for managing your accounts

Here’s some of our best advice for startups and small businesses looking to get their accounts right:

  • don’t manage your accounts by looking at your bank balance – use your cloud-accounting software to get a true view of your accounts.
  • get paid on time – instead of assuming that customers will pay on time, check your outstanding invoices and chase up payment.
  • charge correctly for your products and services – understand how your pricing affects your income and balance this with your expenses, so you can make adjustments to stay profitable.

Let’s sum up

These tips should help you take control of your accounts, but if you need more advice then there’s no need to struggle on alone. We answer our clients’ accounting questions all the time, and we can help you, too.

How to register a new business

One of the first things to do when getting started with a new business is to register it. But how? It isn’t something taught in school, and if you’ve only ever worked for someone else, it won’t be something you’ve had to worry about before.

Good news: registering your business is relatively simple and quick, and it can all be done online. You can also register by phone or post if you prefer.

Registering your business means completing the relevant forms via HMRC’s Set up a business page. The questions are straightforward and among the usual details, you’ll be asked to confirm your National Insurance number.

The HMRC registration process is the same throughout the UK, so don’t worry if you’re not in Scotland as we are.

HMRC registration is essential whether you’re setting up as a sole trader or as a limited company. In the case of setting up a limited company, you also need to register with Companies House.

If you’re not sure whether you ought to set up as a sole trader or as a limited company, check out our article Sole trader versus limited company: the pros and cons for your small business.

You may also decide to register for VAT, especially if you’re likely to be incurring significant business expenses during the early months of being in operation.

VAT registration does pose an extra admin burden, though, so you may prefer to wait until you reach the VAT threshold before registering. You’ll also need a registered trading address in order to be VAT registered.


When should you register your business?

While the process of registering your business itself isn’t too difficult, people are often unsure as to when to do it. Should you do it after your first piece of business? Or after you settle your first invoice?

We recommend registering with HMRC as soon as you’re ready to start trading.

In HMRC’s eyes, “trading” means selling goods and services for a profit on a regular basis. This means there can be grey areas when it comes to working out whether you can truly be deemed to be trading.

For example, semi-recreational activities that you do at home and that lead to you selling products at an occasional car boot sale are unlikely to be seen as a business. Therefore, you wouldn’t need to be registered with HMRC.

But given that most businesses are very much about selling goods and services for a profit on a regular basis, skipping registration is rarely an option.

Assuming you’re ready to take the plunge, we suggest starting out by registering as a sole trader. That way, you won’t need to worry about dealing with Companies House at the outset of your business.

Even if you plan to work with others, there’s nothing to stop you each registering as sole traders and later coming together to form an official business partnership as a limited company.

This won’t apply in all cases and there are some circumstances where it’s right to be registered as a limited company from the outset. You can get advice on this from HMRC or by talking with accountants such as us.

Remember that we’ve also published a pros and cons list to help you understand the relative merits of being a sole trader or a limited company.


What else should you do when registering a business?

We’ve already mentioned VAT registration, which is mandatory if your income exceeds that VAT threshold (currently £85,000). You can register voluntarily even if your income is below the threshold, which may be wise if you have a lot of early expenditures to make that include a reclaimable VAT component. If you’re not sure whether to register for VAT, speak with your accountant for advice.

You might also register with the Information Commissioner’s Office (ICO). With the General Data Protection Regulations (GDPR) in mind, your need to register with the ICO depends on your role as a data controller and data processor in dealing with personal data of staff and customers.

In most cases, it’s a good idea to register with the ICO, and the annual fees for doing so are often relatively low, with most small businesses paying only £40–£60 per year.

Use the ICO’s online checker to see how much you’d need to pay and then use the Data protection register form if you wish to go ahead.

No other formal steps need to precede the registration of your business.


Let’s sum up

The process for registering your business is easier than it’s ever been, and it’s possible to get through the online forms in as little as 30 minutes. Be sure of how you want to set up (either sole trader or limited company), and don’t be afraid to ask your account if you need advice on what’s best for your personal circumstances.

Get in touch with us to find out more about how we can help your startup business with advice on getting registered so you can start trading.


Where can I get funding for my startup business?

You have a great idea for a product or service that’s going to bring some value into the world. But you know you need money to help get your startup idea off the ground. Where do you look and how does this work in practice?

In this post, we’ll see how your startup can get funded.


What do I need to supply to get startup funding?

Because your new business has no background or credit history of its own, it’s essential that you put together a solid business plan that sets out the problem your business is going to solve and how you’re going to do it.

Potential investors will want to know how much money you need, how you intend to use it and how you can give them a return on their investment. You’ll increase the chances of an investor opening their wallet to you by clearly expressing:

  • why the investor should invest in you, and
  • what the investor will get out of it.

As the saying goes, “people invest in people”. Even though your plans should include figures to show that your business case that stacks up, your potential investors also need to build trust in you and your team. Investors will want to hear your clear take on the problem your business solves and why you came up with your idea. You and the plan both need to be credible.

Investors need to feel confident that their investment is going to be repaid, so paint a picture of a sales/exit strategy that benefits everyone involved.

All of this may seem unfamiliar territory. After all, you might be trying to build an app, create a popup restaurant or imagine some other new product or service. Your skills lie in doing that thing, not in writing business plans or considering finance options and exit strategies.

Rather than muddling your way through in the hope of convincing an investor to part with their cash, it’s often wise to seek help when putting together the plans for your startup.

We’re used to talking with startups and positioning their new businesses in a way that appeals to potential investors. We can make introductions to relevant finance providers and industry contacts. Get in touch if you need a hand.


Before you look for investment

Aside from building a solid business plan, what else should you do to give your startup the best chance of receiving funding?

Our best advice is to do as much as possible by using your own personal funds. That might also involve borrowing from family and friends. It’s never easy to ask for money, but this is a more realistic early route than approaching a bank and expecting them to support a new business with no credit history.

Self-funding, including earnings from work you do in separate jobs, will show investors your commitment to your idea. After all, why should they take a chance on you unless you’ve shown the willingness to take a risk first?

Those early funds can also be crucial in helping you build a prototype of your idea. If you can create something to show to potential investors, that will be far more convincing than an idea on paper.

If your plan is to sell a physical product, could you get a model built? If it’s an app, could you make a video showing what it might do? If you’re creating a restaurant, could you develop a menu and some sample dishes?

There’s another important point to consider while you’re getting ready to pitch your idea to the world. The last thing you want is to share your plan before you’ve protected your intellectual property (IP) and investigated any relevant copyright issues.

Failing to do this means that your idea could be used without you getting any of the credit. Take the necessary steps to protect your startup before seeking investment or go to market.


Where can startups look for investment?

Let’s say you’ve developed your business plan and have put your own funds into getting some form of prototype ready.

Having reached the limits of what you can do by yourself, you now want to secure some funding to grow your startup business. Here are some routes to investigate.

Business Gateway

Business Gateway is known for offering courses on how to get started and improve your business.

It can act as a stepping stone to accessing funds to help your startup. Though you won’t receive any money directly from Business Gateway, you can make connections with relevant organisations who may be able to help with investment.

For example, promising new companies in Scotland may pass through Business Gateway and be referred to Scottish Enterprise, who in turn can help with access to government-backed grants.

Business Gateway can also advise you about research and development grants and other routes to access funds to support your startup.

European funding

Startups can benefit from loans of up to £25,000 via the Scottish Growth Scheme, a £500 million package of financial support for Scottish businesses from the Scottish Government and the European Regional Development Fund. This fund isn’t tied to the UK’s status as a member of the EU (in other words, it’s not affected by Brexit).

At MHA Henderson Loggie, we’ve successfully helped clients raise debt finance through Business Loans Scotland (https://www.bls.scot/), but these funds can also be accessed through:

  • DSL Business Finance Ltd
  • Business & Enterprise Scotland Ltd
  • Techstart Ventures
  • Foresight Group

As you might expect, accessing funds like this isn’t just a simple case of filling in a form, so it’s best to talk to a competent professional partner who can help. We make introductions like this for many of our startup clients, so get in touch if you’d like to discuss this further.

Debt funding of up to £100,000 is available for more established businesses, so these loans aren’t just for startups.

Business angels

Most of the business angel networks in Scotland will be registered with LINC, the Scottish Angel Capital Association, and details of their investment preferences and appetites can be found on the LINC website (https://lincscot.co.uk/). Look up the “business angels” who are interested in your field. They have their own websites that allow you to submit your plans.

Such submissions generally go to a gatekeeper who then filters the applications and proposes the most relevant and interesting plans at the angel investor meetings. Your plan needs to be attractive enough to survive the selection process and be offered up in front of the investors.  It can help to have talked to one or more of the angels directly in advance and have them champion your plan. Meetings might take place every few weeks or months, so you may need to be patient. In most cases, significant investments are unlikely to be arranged quickly.

Business introductions

Your accountants are likely to have their own network of high-net worth individuals. In our case, we often make introductions between our startup clients and our network of clients who have expressed an interest in making such investments.

To give our startup clients the best chance of securing the funding they need, we help them brush up their business plans to make them “investor ready” before passing them on to their potential future business partners.

Also, our network includes bankers, lawyers and other professional service providers, so we can often make introductions that help startups with the other tasks associated with doing business.


Does my UK location affect my potential for startup funding?

Your location usually isn’t relevant to whether you can secure funding for your startup.

However, when it comes to local authority-backed grants, the funding process can differ a little across the UK.

Regional Selective Assistance grants, for example, depend on your postcode. In areas with low employment, Scottish Enterprise may offer a grant based on your business employing staff. The extent of such a grant depends on the area you’re in and number of employees you take on.

Schemes like this are based on your business making a financial outlay and then recouping some of your costs – so you still need the funds to spend in the first instance.


How true is the Dragons’ Den version of startup funding?

The good news is that the reality of dealing with investors is less adversarial than what we see on TV. What works on an entertainment show doesn’t always reflect the truth of business.

If you meet with a potential investor, it’s safe to say that they’re already interested in working with you. The difficult part is getting them into the room to begin with.

So, the challenge is to get on their radar. Getting a startup funding deal over the line is more about good research and preparation than it is about a face-to-face battle of wits.


How are startup funds paid?

Even if you’ve made a winning case, remember that any investors in your startup will need a legal agreement before a penny is exchanged.

Your business plan should include details on what you’re offering to investors and this will form the basis of negotiations over the investment structure such as how many shares their money gets them and how many seats they’ll occupy on your board.

With this information clear, agreed and legally binding, your investors will deposit money into your business bank account. Remember that there should be no doubt about what the money will be used for and how long it’s expected to last.

Investors don’t want surprises. Do everything you can to uphold your side of the agreement.


Let’s sum up

Running a startup isn’t easy and neither is securing funding to help it grow.

Potential investors need convincing before they loosen their purse strings. Our best advice is to build a robust business plan that stands up to their close inspection.

Start small and do what you can with your own funds first, including creating a prototype of your product or service to build your credibility and help give investors confidence in your work.

Be clear on what problem you’re going to fix and let the investors buy into you as much as they do the business itself. Approach Business Gateway and look for business angels who can make referrals to the right groups, and keep in mind that some startups may be able to access government-backed grants.

Finally, speak with the people who can put your plans in order and give you the best chance of connecting with the investors who can help make your startup a success.

To chat with us about how we help connect our startup clients with potential investors, get in touch now.


Startup expenses: what you can and can’t claim

Money’s tight when you’re a startup. The last thing you want is to miss out on reclaiming expenses you incur as you start to build your business.

But while you’re busy assembling a team, working on developing your product or service, marketing your brand and doing all the other things that new business owners need to do worry about, it’s easy to forget about keeping an eye on the finances.

Looking for help online isn’t always easy either. There’s plenty of information spread around on gov.uk, but its guides run to more than 100 pages and finding and reading all that certainly can be … “taxing”.

So, what expenses can startup businesses claim? Here’s our roundup of the most common areas where you can (and can’t!) claim expenses for your startup.

If you’re in any doubt about what you can or can’t claim, speak to your accountant. Or set up a call with us and let’s talk about how we can support your startup business as it grows.


The golden rule for what you can claim as a business expense

Claim only for the expenses that you incur which are wholly, exclusively and necessary during the everyday running of your business.

Capturing all your costs is the key to not missing out. We often see startups not claiming for expenses that are perfectly legitimate. So, hold on to your receipts, because expense claims for the following are likely to be tax deductible.


Pre-setup costs

It’s easy to assume that you can claim for expenses only after you start your business. In fact, limited companies can claim relevant expenses for up to 7 years before the business begins operations.

Here are some areas where business expenses may be tax deductible:

  • computers & software
  • internet & web domain fees
  • travel costs
  • professional services

Laptops and tablets can be a grey area for expenses, because their portability means they’re often used at work and at home. If you’re confident that you can justify the expenditure based on a real business need, you should be fine to claim these.

Professional services can include the costs associated with accounting and legal help, such as company formation and the drafting of contracts.

There may be some items that count as business expenses but that are not allowable as tax deductions. Not all business expenses are tax deductible.

Try to maintain an accurate record of pre-formation and running costs, including VAT receipts. Doing so helps you justify your actions should your business expenses claims be queried.


Business insurance expenses

You can claim the cost of your business insurance policies as limited company expenses, so long as they’re used strictly for business purposes.

Allowable expenses for business insurances include:

  • public liability insurance
  • employers’ liability insurance
  • professional indemnity insurance
  • contents insurance
  • vehicle insurance (if you have company vehicles)

Advertising, marketing and PR expenses

Promoting your startup is an important part of building momentum for your new business. So, the following are claimable on your company expenses:

  • advertising (online, print & other media)
  • social media campaigns
  • PR

These expenses can be for one-off promotions or ongoing costs, so long as the investment relates solely to business purposes.


Travel and accommodation expenses

Travelling and overnight stays put a strain on your time as a business owner, but many of the related expenses can be reclaimed:

  • accommodation costs for business trips with overnight stays
  • reasonable food, drink and subsistence costs
  • business mileage costs

There is an HMRC-approved scheme for claiming mileage. Keeping a mileage log and using this scheme is a quick, easy way to reclaim travel costs. Keep in mind that you have to satisfy the following for your expenses to be valid:

  • You’re responsible for paying the travel costs.
  • The travel is necessary for work purposes and you need to be present at the destination in question for business purposes. (This doesn’t include the everyday commute between your home and permanent workplace.)

If you use your personal car or van to travel to a temporary place of work and you’ve paid for the fuel out of your own pocket, you can claim the following rates as limited company expenses:

  • car/van – 45p per mile for the first 10,000 miles and then 25p for every mile thereafter.
  • motorcycle – 24p per mile
  • bicycle – 20p per mile

Claiming the above rates doesn’t just lower your total Corporation Tax bill, it also means you can reimburse yourself for the amount claimed.

As well as the mileage rates listed above you can also claim the following as business expenses:

  • parking costs (but parking fines are not allowable)
  • road toll fees
  • congestion charges
  • hotel rooms (within reason)
  • food and drink on overnight trips
  • public transport, including train, bus, air and taxi fares
  • vehicle Insurance (company vehicles only)
  • vehicle repairs and servicing (company vehicles only)

Note that travel doesn’t have to mean long distances: trips to banks, solicitors and other short but necessary business travel can all be claimed. It may not seem like much, but it all adds up over the course of a year. 


Bank charges

Keeping your money safe and handling transactions are necessary parts of doing business. Therefore, bank fees charged to your business accounts can be claimed as valid business expenses. That also includes claims for credit card and loan interest.


Use of home as office

While most businesses run on their own or rented property, but it’s also possible to run a business from home.

If you do this, you’re able to claim a percentage of your household costs and utility bills as business expenses.

The easy approach is to claim a simple rate of £4 per week (£208 per year). Alternatively, you may wish to work out what rooms you use for your business needs and the amount of time they’re used for work purposes.

You’ll also be able to claim back other related costs related to working from home, so long as they’re incurred solely for the purposes of business:

  • lighting
  • heating
  • postage & printing

Gifts, entertainment and trivial benefits

Staff entertainment and staff gifts can be claimed as business expenses. However, there are limits to what can be allowed for tax purposes.

Cash gifts to staff, or gifts that are performance related (such as rewards), are taxable on the employee, whereas flowers for a staff member would be perfectly acceptable.

For staff events and parties, the costs of entertaining your employees can be claimed as a business expense if it’s an annual event open to all staff members and costing less than £150 per person.

Any client entertaining, even if it’s a genuine business expense, is not allowable for tax purposes.


Phone bills

Communication utilities, including phone and broadband access, can be claimed as a limited company expense.

If your mobile phone contract is in your company’s name and it relates solely to business purposes, you can claim the entire bill as a business expense.

If it’s a personal contract, you’ll need to separate the business and personal use and then claim for only the business-related expenses. You can also claim limited company expenses for the business calls you’ve made from your home phone line.

HMRC have looked closely at this issue in recent years. If your phone contract is used for both personal and business but you easily identify what the business costs are, you’re advised not to claim any of it.


Equipment expenses

Plant and equipment purchases can be claimed so long as they’re used mainly for business purposes. Examples include:

  • computers
  • company vehicles
  • furniture

These costs will likely be treated as capital expenditure and end up as assets on your Balance Sheet rather than your normal expenditure. You’ll get the tax deduction for them in your Corporation tax return, under HMRC’s Capital allowance rules.


Professional development expenses

Personal development and training courses can be claimed as limited company expenses. Any training has to be wholly and exclusively for the purposes of your trade. If in doubt, check eligibility before adding such expenses to your records. 

You’re also allowed to claim expenses for magazine subscriptions, journals and books.


Salary

If your startup is a limited company and you’re a director, it’s normal for you to pay yourself a salary as an employee of your business. That salary and the corresponding National Insurance Contributions (NIC) can be claimed as allowable expenses.

Once you reach the National Insurance threshold, you’ll have to start paying NIC.

Though it goes beyond the scope of this article, we’d encourage you to think about how you’re paying yourself. For example, some business owners take a minimal salary and then use dividends to help with their personal allowance.

Our team are used to talking people through what’s best for their personal tax circumstances. Get in touch if you’d like to explore this further with us.


Pensions

Thoughts of pensions might be a long way off when you’re just getting rolling with a startup business.

But if you’re the type to think ahead, keep in mind that your limited company can pay into your pension scheme. 

As an employer contribution, this would be an allowable tax deduction from the company profits, therefore reducing the tax payable by the company.

There are limits on how much money the company can pay into your pension in any one tax year.


Common expenses that your startup business can’t claim for

Remember that you can claim only for the expenses that you incur which are wholly, exclusively and necessary during the everyday running of your business.

You can’t claim for expenses that have a dual purpose for business and personal use. For example, if you decide to extend a business trip abroad for leisure purposes, you can claim only for the business days.

As per the section about phone bills, you need to differentiate clearly between business and personal use in order to claim expenses on a personal mobile contract. That’s why it’s probably best to set up your contracts in your business name.

Here are some general examples of expenses that can’t be claimed for:

  • home to work journey
  • most client entertaining
  • business trips that you extend for personal holiday
  • anything for personal use

In practice, that hasn’t stopped some of our clients trying to claim for expenses that were never going to make it through.

Here are some real examples that again can’t be claimed for:

  • trips abroad being claimed as annual AGM costs for their spouse’s company
  • family meals out being claimed as shareholder meetings
  • sports season tickets being claimed as “sponsorship”
  • kids’ bikes being claimed through the cycle to work scheme
  • petrol receipts being claimed through the business, when the company owns only a diesel vehicle
  • multiple iPhones/iPads going through the business around December time, despite there being only one director/employee in the company
  • games consoles described as computers in the client’s cashbooks

Remember to stick with what’s reasonable: only genuine business expenses count.

If you’re in doubt about what’s a reasonable expense, do check with your accountant. And if there’s a grey area, you might be safest not to claim.

Business expenses may be paid through your company’s bank account, or you can reclaim the costs of business expenses paid by you and later reimbursed via your company.


In summary

As you can see from the lists above, there’s a vast array of things that startup businesses can claim for as well as a few things that definitely can’t be claimed for! Most business owners can easily overlook one or more of these areas, so keep this article handy and make sure you’re always holding on to your receipts for your expenditures.

And again, if your expenditure is for something wholly, exclusively and necessary during the everyday running of your business, you can probably claim for it as a business expense.

If you’d like to find out more about how we can help you get your tax right and not miss any of the expenses your startup business can claim, contact us now.


Should you hire an accountant? Pros & cons for startups

You’d expect an accountancy firm to be biased on the question of whether or not startups and other businesses should hire an accountant. But is getting an accountant always the right move? Perhaps not.

In this post, we take a fair look at the advantages and disadvantages of using an accountant to support your startup business.



Pro: Peace of mind

Finance is not every businessperson’s strong point. When you have many other tasks vying for your attention, this isn’t an area where you want to make a mistake.

Knowing that a professional organisation will keep your finances in good order is a great basis for turning your startup into a stable business.


Pro: Lower costs than expected

Many of the businesses we deal with find that the money they spend hiring us is paid for by the savings we’re able to help them make.

Our fees depend on the level of work involved. One good way for you to cut your expenditure on accountancy is to do some of the necessary tasks yourself. For example, many of our clients use cloud packages such as Xero, QuickBooks and Sage, which means there’s less admin for us and hence a lower charge.

If hiring an accountancy firm represents little or no cost to your business, the smart thing to do is to leave the numbers to the experts and get on with running your core operation.

Don’t forget that costs can be measured in time as well as in pounds and pence. We regularly save our clients hours of effort each month. Imagine what you could do with that spare time to help push your startup forward.


Pro: Claiming for the right things

Working with a professional accountant will help you avoid problems we’ve seen with lots of new clients. That includes issues such as not having registered for VAT soon enough or buying a car in an individual’s name and then trying to claim it as a company vehicle.

In addition, there are many things your business might be able to claim for but that you’re not aware of. Simply put, you don’t always know what you don’t know.

The good news is that it’s an accountant’s job to know this sort of thing. That’s why hiring professional help can often save your business money instead of being a cost.

You can learn more about the types of expenses you can (and can’t!) claim for by reading our article here.


Pro: Improved business processes

Working with an accountant shouldn’t mean having to record any more or less data about your business. Good record-keeping is essential and you should be doing this anyway.

However, we’ve found that many of our clients have changed and improved their processes based on our feedback. For example, we’ve shown them a better way of handling their year-end processes, and that sort of adjustment will benefit them for years to come, whether they keep working with us or not.

Your accountant may be able to assist you with book-keeping and cash flow projections. They can assess the likelihood of getting bank loans approved, and they can even make introductions to other businesses, such as solicitors, thanks to their network of connections.

Activities such as this are part of our standard approach to helping our clients. Instead of just being the number crunchers, we try to provide something of greater value so that startup businesses have the best chance of sticking around.


Pro: Privacy protection

All our processes are GDPR compliant, as are the cloud-based packages our clients use, including Xero, QuickBooks and Sage.

Data protection is an essential cornerstone of working with a professional accountancy firm. In contrast, handling financial tasks internally might not give you such protections.

Think about how well set up you are to explain how your financial processes work if ever your business were to be inspected by HMRC.



Con: Another burden on your funds

We know that money is top of mind in most businesses, especially in startups, where you have to stretch every penny while you work hard to build momentum.

If anyone in your business has financial skills and experience, they might be able to fulfil the role played by an external accountancy firm. Even if this isn’t a permanent role, leaning on in-house expertise in the short term could be a good way of saving much-needed funds until you’re ready to outsource this work to dedicated professionals.

In our experience, clients tend to hire accountancy firms like ours only at the point where it’s a necessity. That’s understandable: just make sure to keep good records so that it’s easy for you to work with an accountant when that time comes.


Con: Underuse of in-house skills

You might already employ someone with all the skills necessary to do the accountancy work in-house. If that person is already occupying another role, it might be possible to get them to handle their regular tasks and accountancy tasks as part of their normal working week. This has the potential to save the business a lot of money, so long as the person in question keeps their knowledge up to date.

Using an in-house person also means you avoid needing to carry out due diligence on hiring an accountancy firm. Assessing the relevant costs, services, locations and qualifications all take time. Bear in mind, too, that anyone can call themselves an accountant or tax adviser even though they might not be accredited via ICAS/ACCA/ICAW (we have these accreditations!).


Con: Hire your own member of staff

For some businesses, it’s important that every aspect of the work is done internally, and that means that even accountancy wouldn’t be outsourced.

If your corporate culture and ethos is built along these lines, you’ll need to hire people capable of handling your accounts. This comes with its costs, especially if those people have a dedicated accountancy-only role in your organisation.

This approach does not exclude you from potential inspection and auditing from the relevant tax authorities.


Con: Alternative routes may be better early on

Paying for an accountant isn’t the only way to get your accounts in order. You might be better served, at least early on, by learning the financial skills necessary through Business Gateway, through Elevator or through mentoring arrangements with experienced business-people.


Let’s sum up

We think that smart startups are best off working with an accountant as soon as they can. But as our list shows, there are reasons for and against doing so.

Think about what’s right for your new business, and if you need a hand with your accounts or simply want to chat, please get in touch by completing the form below and we’ll get back in touch with you soon.


Andy Niblock

Andy provides audit and accountancy services to clients in both the commercial and charitable sectors. He trained and worked for a Big 4 firm, and also worked in industry for a period before returning to the profession.

Andy has very much a hands-on approach due to his time spent in industry, and understands the practical issues of running a finance function and the issues they are faced with.

Andy also specialises in outsourcing of finance functions, providing this service to companies without their own in house finance team. The service Andy provides means he’s often involved with companies on a day to day basis, providing advice and ensuring their time is freed up rather than worrying about the financial administration side of their business.