In that tricky first year, a new business needs to keep the cash flowing – so try these handy tips from accountancy experts Crunch to keep hold of your cash.
So, you’ve started your own business – well done!
Now you’re flying solo, which means the only person capable of making more money is you. With 90 percent of businesses failing in their first year, money is definitely a big concern. But follow these simple rules, and you can increase the odds that your business will survive the all-important first year. So how do you keep as much of your money as possible?
Nothing says “I’m a consummate professional” like a Limited Company name. LTDs are cheap to set up (sometimes as little as £15) and give you limited liability. Which basically means that if your company goes under, it won’t take you with it.
Pay yourself a pittance
By paying yourself only up to the National Insurance Contributions threshold you’ll avoid loads of income tax and NICs. You can then make up the rest of your income using dividends from your company.
The final tax you pay will be Corporation Tax on your profits – so you’ll only pay tax on the money your company makes as profit, as opposed to paying income tax on everything you earn as a Sole Trader.
Sell your stuff
If you have equipment you personally own that you use for your business (laptops, mobile phones etc.), you can get your Limited Company to purchase them from you, and these purchases become assets of your company.That means your company is effectively giving you money tax-free.
Keep an iron grip on your cashflow
Nothing can harm a business more than a lack of cash in the early days – you’ll have to use overdrafts and loans to meet the shortfall, which can see you buried in interest charges and repayments.
How to keep the cash flow flowing? Make sure you invoice clients straight away and set strict terms on payment. Don’t be afraid to ask for percentage payments up-front, or incremental payments at different stages of the contract.
The rise of the Internet economy has seen prices for products and services fall through the floor. As more companies use the power of the cloud to automate and crowdsource work, the business models of traditional companies are falling to pieces.
But before you decide to save money by cutting a service for your business, think about this: you went into business to do what you love, didn’t you? So don’t spend hours doing all the time-sapping menial stuff. Every minute spent not concentrating on your core business is a minute you’re not profitable.
Instead, write up a list of the features a business service needs to have, and find the cheapest option that offers everything. Make sure the service is flat-rate so you don’t get any nasty surprises, and make sure they don’t lock you in with hefty exit fees. Google their name to make sure they’re legit, then shop around again. Only once you’re completely convinced they’re the best around should you sign up.
Crunch are expert online accountants specifically for freelancers, contractors and small businesses.