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• I am a sole trader. Should I become a limited company?
   
• I want to form a business – what type of structure should I have?
   
• What are the key issues in running my business?
   
• What accounting records should I keep?
   
• Should I computerise my accounting system?
   

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I am a sole trader. Should I become a limited company?

Up until now incorporation (forming a Limited company) has broadly been seen as a way to reduce income tax. Whether or not incorporation will be benefit you depends on your own earnings profile. Detailed calculations need to be done to work this out.

But you can get worthwhile tax savings. These will depend on your profit and what you need as take home pay. You also need to consider the following:

• The Government will be reviewing the tax system to consider “…the realities of today’s changing labour market.” This may mean further changes to the amount of tax paid whether you are self employed or a director shareholder of a limited company
• You also need to compare whether you would be better off keeping your business as a sole trader or transferring it into a company and ultimately selling that company
• Operating through a company is different commercially and has its own advantages and disadvantages compared to operating as a sole trader or partnership

More information? - Contact us

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I want to form a business – what type of structure should I have?

There are four main choices for the legal form of your business.

1. Sole trader, you are self-employed, with no special legal structure.

2. A partnership, two or more self-employed people work together as partners and share the profits (or losses).

3. A limited company is a separate legal entity, distinct from its shareholders, directors and employees. Unlike a sole trader or partnership, it is not the same as the individuals who own or run it. For example, it can sue or be sued in its own name.

4. A limited company partnership has some of the advantages (and disadvantages) of both a company and a partnership. For example, it is a separate legal entity and can continue despite the resignation or death of some members.

Other legal forms can be used, for example, a co-operative belongs to the employees.

You can employ people whether you are a sole trader, partnership, limited company or limited liability partnership.

It is possible to change the legal form of your business after you have started trading. But any change will take time and money.

If you have registered for VAT, you will have to tell your local VAT office within 30 days of the change.

We can give you advice on other tax-related issues, feel free to Contact us.

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What are the key issues in running my business?

You must keep constant track of five crucial areas if your business is to succeed.

1 Concentrate on winning and keeping customers.

• Continually improve your understanding of your customers and the competitive environment to refine your marketing plans and take advantage of new opportunities.
• Promote your business and your products.

2 Monitor your cashflow closely.

• Cashflow is the balance of all money flowing in and out of your business, with
  the main inflow usually coming from sales.
• The more warning there is of cashflow peaks and troughs, the more time you have to deal with them.
• You must know when to focus completely on sales and getting your invoices paid.
• Planning ahead will make it easier to arrange any additional funding you may need.

3 Make sure your employees are performing effectively and are overcoming any problems.

• Start by recruiting the right people.
• Lead and motivate your employees.
• Monitor your team’s performance by holding regular reviews.
• Discuss and resolve any problems and frustrations – otherwise employees will find other jobs.

4 Develop your selling skills.

• Make sure that you, and all employees who interact with customers,
  have the right training, attitude and approach.

5 Control your costs carefully.

• This is often the easiest way to improve your short-term profitability.
• Share knowledge and skills to avoid relying too heavily on one key employee.

More information? - Contact us

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What accounting records should I keep?

The exact requirements will depend on the size and complexity of your business. There is a legal requirement to keep detailed accounting records for a company.

For the very smallest business, the absolute minimum accounting records would be:

• Bank statements, cheque books and paying-in books.
• Original invoices for all purchases and copy invoices for sales.
• PAYE records, even if the only employees are directors.
• VAT records if you are registered, including reconciliations of the amounts
  paid.
• Stock at year end.
• Fixed assets.

You should also consider keeping a petty cash book and, if you keep manual records, an analysed cashbook splitting payments and receipts into separate columns for each type of expense or income.

For businesses which are slightly larger, but nevertheless still use a manual book- keeping system, additional records might include three ledgers:

• Sales Ledger (or Sales Day Book).
• Purchase Ledger (or Purchase Day Book).
• Nominal Ledger.

If your accounts are computerised and you keep them up to date and reconciled to your bank account, compiling annual accounts should be relatively fast and simple.

• The reports produced will depend on your software, but will probably be similar to the separate ledgers of a manual system.
• If you involve us in choosing and setting up the system, the necessary information should be readily available.

More information? - Contact us

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Should I computerise my accounting system?

A computerised system can automate routine tasks and save you time and money. The advantages include:

• Bookkeeping is simplified and automated. For example, you can enter an order and the software updates the stock and customer records and allows you to translate the order into a sales invoice.
• Bank reconciliations, VAT returns, monthly management accounts and other
  accounting tasks can be completed quickly and accurately.
• Some software supports electronic banking, and could save a lot of time.
• Most packages let you add a payroll module to automate the calculation and payment of wages.

Accounting software provides a wide range of up-to-the-minute management reports at the touch of a button.

• For example, aged debtor and creditor lists, the bank account balance, tax and VAT owed, balance sheet, profit and loss, stock values and performance against budget.
• Other useful calculations, such as job or project profitability assessments, can be produced, depending on your software.

The software makes it easier to prepare for your annual accounts, or your audit.

You can make further improvements by integrating different processes. For example, you could use the information contained in your ledgers to generate debt-chasing letters or customer mailshots automatically.

More information? - Contact us