A Chartered Accountant’s Guide to a Business Plan

25 March 2022|Related :

Every year in the UK, approximately 400,000 new businesses start up. The first few years of business can be incredibly challenging and the decisions you make in the early stages can determine your business’ success in the long run.

That’s why it is absolutely essential to have a detailed business plan in place, giving you a detailed structure to work from in order to meet your goals.

In this guide, we’ll be explaining some of the key things you should consider as part of your business plan when setting up a new company.

Should You Register as a Sole Trader or Limited Company?

When deciding whether you should set up your business as a sole trader or limited company, it is important to understand the differences to begin with.

A sole trader is a self-employed person that fully owns their business, meaning they take full liability should anything go wrong and their personal finances can take a hit.

A limited liability company is legally distinct from the owner and has a unique company identity that must be registered with Companies House. This allows for more than one owner or director to share limited liability, meaning their personal finances won’t be affected if the business was to struggle financially.

Which is Right for My Business?

To help you decide which is best for your business, it’s essential to know how each aspect of the business is impacted. 

Earnings

Sole traders are able to keep all of their earnings after tax, which is paid by the self assessment system. This means that your earnings depend entirely on your performance, which is great if you do well but very risky if you don’t.

The owners of a limited company receive their earnings in the form of a salary, which is taxed at standard PAYE rates, but they can also draw their earnings from bonuses and dividends.

Tax

Sole traders are legally required to pay income tax at the standard rate and make National Insurance Contributions on all profits. Any business expenses are tax deductible, so only your profits would be taxed. 

Although this taxation is efficient for smaller traders with lower incomes, it’s less so for larger companies.

As limited companies are registered at Companies House, they must pay corporation tax. 

For large companies, the rate is actually lower than it is for sole traders, so registering as a limited company can be a lot more tax efficient for businesses with high turnovers and big profits.

If you’re looking to keep your business small, you’re likely better off registering as a sole trader for tax purposes. If you’re aiming to outgrow the SME title, you’re likely better off registering as a limited company.

Personal Liability

Operating as a sole trader gives you total control over your business and there are typically less administrative tasks involved. However, it does come with a risk to your personal finances.

Under UK law, there isn’t a legal distinction between your personal and business assets, so if your business runs up any debts, creditors can claim your personal assets in order to balance the books.

Similarly, if a client tries to sue you or take you to court, you may be liable to pay any costs yourself.

Unlike sole traders, directors of a limited company have limited liability, so it’s highly unlikely that they will be held personally accountable for any debts or lawsuits that their business incurs (bar criminal activity or negligence).

If your limited company experiences financial issues, your personal assets will be protected and the company will go into liquidation.

If you’re still not sure which option is best for your business, our team at Ryans can help you decide on the most suitable structure, using our wealth of experience working with businesses from all different industries as guidance.

Securing Funding with a Loan or Investment

If you are attempting to get a loan or investment for your business funding, you will need to present a very convincing business plan to the bank and/or investors, including your cash flow projections, budgets and trading forecasts.

The problem is, most people who start up a business do so because they have a great proposition, not because they’re experts in the legal, financial and fiscal aspects of running a business.

That’s why at Ryans, we can help you to develop a detailed business plan that will wow investors and reassure them that your business venture is a worthwhile investment for them.

Long and Short Term Financial Planning

A business needs to be able to make informed decisions and identify opportunities for growth in order to succeed. This includes working out your short, medium and long term goals and better prioritising them or finding great opportunities for investment.

However, with all the other daily pressures of running a business, strategic financial planning is often not given the attention it needs. This results in rushed judgements, over or under-capacity, or missed opportunities- and of course nobody wants that.

Fortunately, at Ryans, our surrogate financial director is a professionally qualified accountant who can act as your Non-Executive Financial Director to bolster your Board of Directors. 

They can attend board meetings to help you make better informed decisions, control all aspects of financial management, and attend meetings with investors, customers and suppliers to give them the reassurance that you mean business.

If your business could use better planning and preparation, let’s have a chat today to discuss how Ryans can help you.

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