Master your financial responsibilities from the start

Starting a new business is an exciting time and often marks the start of a new chapter. In the beginning, it can be easy to get swept up in focusing on the more ‘fun’ and creative tasks such as marketing, branding, and product design. While these are important, it’s also really important that mandatory financial responsibilities and legal obligations don’t get forgotten about.

Launching a business is a busy time, but as soon as a business has been formally registered the directors become accountable for all financial and tax obligations that relate to it. It’s the responsibility of the business owner to do their research and understand what is required from them to keep the business above board and financially and legally aligned. While that might sound a bit scary, its far easier to do it right from the start of the business, rather than chasing your tail when you’re six months in.

But where should you start? Here are the key five things you need to think about ahead of opening any new business.

Understand your financial responsibilities

Depending on the type of business you have registered the financial responsibilities will differ. For example, sole traders are personally liable for all business debts and liabilities, whereas limited companies are separate legal entities. Whichever type of company structure you have chosen, find out what your statutory obligations are so that you can diarise any deadlines and keep on top of them.

Complete tax registration

When you start a new business you must register for the appropriate taxes based on your set up. To register for tax as a new business you must complete the necessary forms and submit them through the Revenue Online Service to ensure you are on the system and visible to HMRC. You also need to think about whether you need to be VAT registered and understand the requirements under this. Understanding tax can be complex so always seek advice from an accountant who can guide you through the process.

Set up a bank account

You should keep your business money separate from your personal finances – it’s much easier to manage this way. The type of account you need will depend on your business structure. For limited companies for example, they are a separate entity, and the account will need to be a business account but as a sole trader, depending on the bank, you may be able to use a normal current account. Having a separate bank account for your business will make accounting much easier to manage, with everything in one place.

Maintain accurate financial records

It is imperative that at the start of your business journey you get into a good habit of keeping track of your numbers to be able to manage your finances effectively. This includes all transactions such as sales, expenses and any other business-related activities. Making Tax Digital has recently become mandatory for self-employed and property rental businesses earning over £50,000 per year and over the coming years this may be applied to all other businesses. Start off on the front foot by setting your business up on accountancy software. This will help you track expenses and profit in real time so you know where you are. Doing this from the start avoids a headache later on when trying to reconcile everything.

Financial planning

Having a good solid financial plan is advisable for any new business to manage resources, forecast growth and maintain a healthy cash flow. This should be based on current or projected figures including sales and expenses to establish what the targets and overall business projections could be. This will enable healthy business growth and allow planning that enables long-term success for the business.

See Also

Why every startup needs a negotiation mindset

There’s a lot to think about when starting a new business, but focusing on building good habits and setting systems up properly in the beginning will pay off in the long-run. Technology allows us to automate a lot of the necessary processes, making reconciliation across money in, money out and other investments much easier.

It also helps business owners see where they are financially at any given time and enables them to set realistic goals and build on their success. While it can be easy to get carried away when starting a new business, focusing on the bits you most enjoy, your future self will thank you for having got your financial ducks in a row early on.

Understanding what is required financially can be a lot to navigate but seeking advice around business structure and setting up the necessary accounting processes will pay off in the long run and give you peace of mind that everything is being done properly.