Financial organisation is probably the most significant subject which links together the pre-start period and the phase where you are actually beginning to operate. The first consideration will be whether you have enough money to start the business.

Start-up costs

You need now to work out your start-up costs. Make a full and accurate list of the items you need to run the business. This will include the initial cost, vehicles, racking, office equipment, furniture, telephone, alterations, and decorations to the premises and so on.

Insurance

 There are tax implications for insurance and you should consult your accountant. You would be well advised to discuss your insurance requirements with several insurance brokers. It is advisable to get two or three quotations otherwise you may end up with policies that are not really appropriate. Brokers will tell you which insurances are necessary and which are desirable.

Financial requirement

You will have your cash flow forecast worked out at the end of your Business Plan. Make sure that your opening figure for month one includes your start-up costs. Now if you start your cash flow forecast with that figure of £5,100 and work through the year, including any payments for outstanding start-up costs as they occur, you will end up with a series of figures on the bottom line. It is a good idea to prepare an alternate cash flow forecast to show the position if your sales turn out to be 25 per cent less than you think. It will help you to understand the sensitivity of your project, and it will almost certainly impress the bank.

Rising the cash

There are three basic ways of acquiring cash to support your business: to get someone to lend it to you, to get someone to put money into your business as risk capital or equity as it usually known, or to acquire a grant. You would be wise to talk to your bank manager at an early stage, before

Bank Loans

For small businesses, borrowing is done form a normal high street bank. Nowadays these bank branches usually have an area or regional headquarters where specialist managers dealing with business accounts are situated. The starting point for the amount is probably equal to that which you can produce yourself. You will also need enough collateral or security to cover your loan. You may have to sign away your house or some of your business assets so that, if your business fails and you can’t repay the loan to the bank, they can sell the security, take their money back and give you the difference if any. Banks may also want to match the type of loan to the use to which you intend to put the money. At present there is also the Government Loan Guarantee Scheme. This is administered through the banks and, should you be eligible for this type of loan, the Government will guarantee to the bank on your behalf 70 per cent of the amount borrowed.

Equity capital

Equity capital put into business by someone who believes that the value of your business will grow sufficiently well to increase the value of the shares he or she received in exchange for the money invested. You do not have to pay any interest on equity invested; but it is normal to distribute a part of the profit to shareholders, in proportion to the amount of shares held. Your investors will also expect to receive from you a valuation of your business at least once a year. Acquiring equity can be complex and you should take advice. The Government current offers the Business Expansion Scheme whereby private persons investing in a limited company not listed on the Stock Exchange can receive income tax relief at their personal top rate on their investment. The limit is £40,000 and close relatives are excluded.

Grants

There are a number of grants available form the EEC, Central Government (mostly DTI), and local authorities. They are all restricted to special circumstances, geographical location or type of activity. Also the Employment Department administers the Enterprise Allowance Scheme.

Financial Control

Form the outset, try to get used to the idea that you cannot really control a business by figure alone and trying to juggle the cash by chasing debtors and delaying payments to your creditors. Having constructed a Business Plan, you should now have some feel for how your business is likely to develop and how one decision can affect several other aspects of the business. Create a budget or a target, deciding how the activity can be measured, and monitor it by measurement. You will need to set up an accounting system to find out what you have actually done. Where there is a significant difference between budget and actual figure, you must get to the bottom of it and make sure you understand why that difference has occurred. Always remember that there are two parts to running a business: going a forecast and making it happen. The important thing now is to make decisions to get the business back on track. 

Your crystal ball

You might also now consider doing a rolling cash flow forecast for maybe a three-month period. That means that at the beginning of each month, you do a realistic cash flow forecast for the next three months. You should normally have enough information to get it fairly accurate. This is your crystal ball, your talisman for getting you through the minefield! Once you get good at doing this, you will know three months ahead what your cash requirement is going to be.

Trade credit

After making a contract you will be committed to supplying goods of an agreed quality by a certain time, etc; and your customer will be committed to paying you in a certain way by a certain time. Once this is clear, you do not have to put off afterwards by such old chestnuts as; ‘three months credit is the custom of the trade’ and ‘we always write our cheques at the end of the month following the invoice’. Get thing clear when you make the sale.

Inland Revenue

Taxation is a complex and you may be wise to employ an accountant. You will need to satisfy the Inspector of Taxes that the accounts are accurate. He will asses the amount of tax required by law to pay. You must keep evidence of all business transactions. If some transactions are partly business and partly private (heating if you work from home), you will have to agree with the Inspector on the part which represent business use. Community charge is a personal tax and you cannot set any part of it against income tax. You should consider keeping your records of your private and business mileage to substantiate your claims. In the first year or two you will not know your tax liability; but after the second year you will know well in advance how much tax you have to pay.

§         Notification- As soon as you start in business, you should  tell your local Inspector of Taxes,

§         Sole Trader- Income from self-employment will be assessed from the profit and loss account, with the stated profit being adjusted for tax purposes. Some expenses are not allowable for tax and others require to be apportioned between private and business use.

§         Losses- If you make a loss instead of a profit, you may be able to set it against other income in the same or previous tax year, of against profits for future years from the same business.

§         Payment- Assessment is normally made after completion of the first twelve months of trading. In an ongoing situation, the Tax Inspector will make in the autumn of the tax year an assessment based o the profit and loss account for the accounts year ending in the previous tax year.

§         Partnership -If you are a partner, the principle are much the same as for a sole trade. However there are special rules for working out the tax assessment; and, as for the other debts, each partner is legally liable for all the tax.

§         Limited Company- Expenses are treated similarly to a sole trader; but you as a director, an employee of the company and may draw a salary, subject to PAYE, like any other employee. This is a legitimate expense allowable against tax. The resulting profit of the company is then subject to corporation tax whilst your salary is treated, once again, on a personal basis.

§         Capital- Capital expenditure for instance on plant and buildings, is not a deductible expense. Neither is the figure for deprecation which often appears in a profit and loss account. However, there is a system of capital allowances. The law allows the taxpayer to claim a deduction at a set rate. This rate is determined by the nature of the asset and is, for instance, higher for machinery than for factory buildings.

§         Employees- If you employ people you must deduct from their pay an amount for tax under PAYE arrangements and pay it to Collector of Taxes. You also have to deduct an amount for Class 1 National Insurance contributions. This you must pay, together with your own part of the contribution as the employer, with the PAYE tax to the Inland Revenue.

§         Lower limits- Employees earning less then about £40 per week, are not liable for N1 payments. The lower limit for tax is slightly higher, but if your employee is known to have other income, tax may need to be deducted from amounts paid below this level.

§         Construction industry- The construction industry has a special tax deduction scheme. They receive their payments from those who engage them without any tax being deducted. They are responsible for the payment of tax on their total earnings to the Inland Revenue.

National Insurance

Apart from your employees, if you are self-employed you have to pay your own flat rate contributions to DSS unless you have applied for and been granted small earnings exception or you are over retirement age. In addition to this, you also have to pay Class 4 contributions which give you no further benefits, but are calculated on your profits or gains between set amounts. If a self-employed person is also an employee of another business, he or she will be liable for Class 1 contributions if the earnings exceed a set limit. However, there is a maximum amount of contributions which an individual can pay in a single tax year. For employees, Inland Revenue is the collecting agency for National Insurance contributions of employed persons to which both the employer and employee contribute.

Value Added Tax

§         Compulsory registration- You are legally obliged to approach obliged to approach Customs and Excise within 30 days with a view to registration, if at any time you have reasonable grounds for believing that within the next 30 days, your taxable turnover for the past 12 months will have exceeded the annual limit.

§         Voluntary registration- You should consider voluntary registration if you have heavy start-up costs involving VAT. Next, if you spend heavily on inputs and a large part of your outputs go to VAT-registered traders, your prices will have to reflect the VAT you have paid on your outputs. However your customers will not be able to claim back the VAT they are paying you unless you register and you can issue them with VAT invoices. Lastly, you will have to face putting up your prices by 15 per cent or suffering a reduction in profit when you do register.

§         VAT procedure- Your local Vat office deals with registration. You will be given a registration number and an effective date of registration by Customs and Excise, Southend. From that date you must charge VAT on your supplies. Each quarter you will be sent a Return of Value Tax. Your quarterly return with your cheque must reach Southend with 30 days of the end of each accounting period.  You can expect occasional visits form a VAT- inspector to verify the accuracy of your VAT returns. You must enter the total tax paid on business purchases and the tax charged on taxable supplies. Where tax charged exceeds tax paid, the difference has to be paid to Customs. Where tax paid is more then tax charged, the difference may be reclaimed from Customs.

§         The VAT invoice- Only a VAT-registered trader can issue a VAT invoice and he or she must do so if requested. The invoice must show the VAT registration number of the trader. If the value of the supply including VAT is less than £50, the invoice need not show the VAT separately, but must indicate that the total paid includes VAT and the date. Always ensure you get proper VAT invoices from your suppliers. You cannot claim VAT back unless you have a purchase invoice with a date and a VAT registration number on it. committing your own money.